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Why is the loss of existing assets destroyed in a natural disaster not fully shown in 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 goods and services produced during a particular period. A natural disaster can destroy houses, machines and infrastructure that were produced in earlier periods, causing a loss of wealth or an asset stock. That destruction is not itself current production. Reconstruction may later raise GDP, but it does not fully erase the original welfare loss, so A is correct.

Related tags

Stocks And FlowsNatural DisasterGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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