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In a country, output of a polluting industry rises and health expenditure also increases, causing GDP to rise. What does this situation show?

Answer and explanation

Correct answer: Defensive expenditure may enter GDP and overstate welfare

This illustrates defensive expenditure and the distinction between measured output and welfare. Medical treatment or pollution-control spending is recorded as expenditure on goods and services, so it can increase GDP even when the spending merely repairs damage caused by pollution. Option B is correct. GDP does not automatically deduct environmental loss; health expenditure can be included, and pollution does not mechanically reduce measured national income in every case.

Related tags

GdpWelfarePollutionDefensive-ExpenditureGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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