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Why is the value of old assets destroyed by a natural disaster not directly deducted from GDP?

Answer and explanation

Correct answer: GDP measures current production flow and not the full loss of asset stocks

GDP is a flow measure: it records the value of final goods and services produced during a particular period. A natural disaster destroys an existing stock of buildings, machines, or other assets, and that loss is not itself current production. Reconstruction spending after the disaster may increase GDP because it involves new production, but this does not mean the original asset loss is directly deducted. Therefore, option A is correct.

Related tags

Natural DisasterAsset LossFlow And StockGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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