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A government counts timber obtained from cutting trees as output but does not record depletion of natural forests. What bias may arise in GDP?

Answer and explanation

Correct answer: Overstatement of sustainable welfare

GDP records the market value of timber produced, but conventional GDP does not automatically subtract the loss of natural capital caused by forest depletion. Consequently, current measured output can appear higher even though future productive capacity and sustainable welfare decline. Option A is correct. The other options concern population, nominal-output understatement, or distribution, none of which follows from the stated omission.

Related tags

Natural-CapitalForest-DepletionSustainable-WelfareGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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