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.
Frequently asked questions
What is the correct answer to this question?
Welfare cannot be judged from higher output alone because wealth was also destroyed
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
