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The government spends more on crime control because crime has increased. What is the most appropriate analysis of GDP and welfare?

Answer and explanation

Correct answer: GDP may rise, but welfare may fall because crime has increased

Government purchases of crime-control services can count as current production and therefore raise measured GDP. However, the increased crime that caused the spending imposes fear, loss, and reduced quality of life, none of which is fully captured by GDP. Option B correctly separates recorded expenditure from the underlying social harm. C is false because qualifying government expenditure is included; A and D assume every expenditure improves welfare.

Related tags

Government-SpendingCrimeDefensive-ExpenditureWelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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