Read the following passage and answer the item that follows. Your answer to this item should be based on the…
Read the following passage and answer the item that follows. Your answer to this item should be based on the passage only.
Passage:
A central message of modern development economics is the importance of income growth, by which is meant growth in Gross Domestic Product (GDP). In theory, rising GDP creates employment and investment opportunities. As incomes grow in a country where the level of GDP was once low, households, communities, and governments are increasingly able to set aside some funds for the production of things that make for a good life. Today GDP has assumed such a significant place in the development lexicon, that if someone mentions "economic growth", we know they mean growth in GDP.
With reference to the above passage, the following assumptions have been made:
1. Rising GDP is essential for a country to be a developed country.
2. Rising GDP guarantees a reasonable distribution of income to all households.
Which of the above assumptions is/are valid?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Solution
Statement 1 is invalid: the passage says rising GDP creates opportunities in theory; assuming GDP alone is essential for being a developed country is an overstatement. Statement 2 is invalid: the passage nowhere says rising GDP guarantees reasonable income distribution to all households. Hence neither is valid.