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If sales of home-security equipment rise because crime increases, what may happen to GDP and welfare?

Answer and explanation

Correct answer: GDP may rise but security-related welfare may fall

The concept illustrated here is defensive expenditure. Purchases of alarms, locks, cameras, or other security equipment are market transactions and can increase measured GDP. However, the underlying rise in crime creates fear, loss of freedom, and possible harm, reducing welfare. The spending may protect people from some danger but does not make the original insecurity a benefit. Hence GDP may rise while security-related welfare falls, making D correct.

Related tags

Security EquipmentCrimeDefensive ExpenditureGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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