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A country's GDP rises because reconstruction spending surges after a natural disaster. Which statement about welfare is most appropriate?

Answer and explanation

Correct answer: Welfare cannot be judged from higher output alone because wealth was also destroyed

Reconstruction involves current market production, so payments for construction, repairs, and related services can increase measured GDP. GDP is a flow measure and does not by itself show the loss of houses, infrastructure, assets, life, or security caused by the disaster. Since the pre-existing stock of wealth and welfare may have fallen, higher reconstruction output cannot prove that welfare is higher. Option C correctly separates output from overall well-being.

Related tags

GdpWelfareNatural-DisasterReconstructionWealthGdp And WelfareNational Income And Related AggregatesEconomics

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