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If government spending on prisons rises because crime has increased, how should GDP and welfare be interpreted?

Answer and explanation

Correct answer: GDP may rise but higher crime may reduce welfare

The governing concept is that GDP counts paid government services, not the reason those services became necessary. Prison operation, staff, and related services are part of measured production, so greater spending may increase GDP. However, if the increase results from more crime, society is facing insecurity, victims, and prevention costs. Consequently welfare may decline even as GDP rises, making option D correct. The other options either deny production or ignore the social harm.

Related tags

Government SpendingCrimePrison ServicesGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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