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If spending on pollution cleanup rises and NNP also rises, what caution is needed in drawing a welfare conclusion?

Answer and explanation

Correct answer: Welfare may not necessarily have risen despite higher NNP

Pollution-cleanup expenditure is counted as economic activity and can increase measured NNP. However, the expenditure may merely repair damage caused by pollution rather than provide an equivalent net improvement in people’s well-being. If the original environmental harm, health costs, and loss of amenities are not fully valued, higher NNP does not prove higher welfare. Thus, option A gives the necessary caution.

Related tags

EconomicsNnpWelfarePollutionCleanup ExpenditureEnvironmentGdp And WelfareNational Income And Related Aggregates

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