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.
Frequently asked questions
What is the correct answer to this question?
Overstatement of sustainable welfare
Why is this the correct answer?
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.
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.
