a)

1. GDP stands for Gross Domestic Product, it is the market value of goods and services, produced
and consumed in a country. When the economic performance of the two countries in this case, i.e.,
India and UK, is compared. Comparison of the GDP plays and important factor.

Here, in this case, India is mentioned as the fastest growing trillion-dollar economy in the world, with
the nominal GDP of 2.94 trillion and UK had a nominal GDP of 0.837 trillion.

Which clearly shows India’s GDP is growing better than UK’s GDP, which also proofs the importance
of GDP while comparing two country’s economic.

2. Purchasing Power Parity: it allows us to compare economic productivity and standard of living
between countries. Standard of living can be measured when there is an increase in consumption
which means income of the people has increased. The country having the highest purchasing power
parity, has a better economic condition. In this case, it is the comparison between India and UK and
their Purchasing Power Parity plays an important role.

3. GDP per Capita: it means the country’s economic output that accounts for its number of people. It
is calculated by dividing gross domestic product by its total population. A uniform distribution of
GDP per capita in the country means allows there is less employment in the country and the
consumption is uniform. The poverty in the country is less as well. In this case, we are comparing
GDP per capita of India and UK, to get a better view of the economic condition of the both countries.

4. Human Development Index HDI is in another indicator and compared to UK it is low in India.

b) Every economy of any country overstates the level of expenditure and understate the level of
income. One of the factors that overstates the GDP in India is depreciation capital. India overstates
the level of economic activity with rapidly depreciating capital stock. Since the population is high in
India the consumption spending plays a biggest part in the economy of India. This factor is
overstated in India. Income approach were all the income getting economic activities like wage paid
etc is understated.

The factors that overstate and understate the GDP of India will be:

Consumer surplus: Lets consider the food prices goes down the consumer surplus increases.
Everyone still consumes the same amount of food. So, it does not have to overstate or understate

Change in GDP: Will lower the customer welfare. It cannot be overstated because it is not intended
to measure welfare to begin with only output.

Wellbeing: More subjective in nature. It mainly depends on how people perceive about each other.

c) The liberalization is a supply side measure as the output and production will increase and imports
will also increase. Foreign Investment will lead to more industries and therefore increase in
production.