If NDP rises because the output of a polluting industry increases while environmental damage also rises, which conclusion is appropriate?

Correct answer: NDP shows output growth, but the welfare effect may be unclear

NDP records the value of measured domestic production after deducting depreciation, but it may not fully subtract every environmental cost caused by production. If a polluting industry expands, NDP can increase even as health, environmental quality, and people’s quality of life deteriorate. Thus, the net welfare effect cannot be determined from the rise in NDP alone.