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Government spending on pollution control may be added to GDP. Why is it not treated as a complete welfare gain?

Answer and explanation

Correct answer: Because it may be spending to reduce existing environmental damage

The governing concept is defensive expenditure. Pollution-control spending may be counted as government production or final expenditure in GDP, but it can merely prevent, repair or offset damage created by pollution. The recorded expenditure does not mean society has gained an equal amount of new welfare. Hence option B is correct; government spending can be included and control equipment can be a final product.

Related tags

Defensive ExpenditurePollution ControlGdpWelfare MeasurementGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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