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In which situation will GDP rise without a necessary increase in real social welfare?

Answer and explanation

Correct answer: Higher medical spending caused by pollution-related illness

Medical treatment purchased in the market is counted as expenditure on current services and can therefore raise GDP. However, if the spending is caused by pollution-related illness, it is defensive expenditure: it repairs or offsets damage rather than representing a genuine improvement in well-being. Unpaid care, clean air, and leisure may improve welfare but are not necessarily recorded as market output in GDP.

Related tags

GdpWelfareDefensive-ExpenditureHealthGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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