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What caution is needed when interpreting an increase in GDP due to disaster-repair spending?

Answer and explanation

Correct answer: GDP may rise even though disaster-related losses reduce welfare

Repair services can be current production and add to measured GDP. However, GDP does not fully record the destruction, disruption, or suffering caused by the disaster. Repair spending may therefore raise GDP without representing an improvement in welfare; it may simply restore what was lost.

Related tags

EconomicsGdp And WelfareDisaster SpendingRepair ExpenditureGdp LimitationsNational Income And Related AggregatesClass 11 Mcq

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