After a natural disaster, heavy reconstruction expenditure raises GDP. Which statement is correct regarding welfare?
Answer and explanation
Correct answer: Reconstruction raises output, but net welfare may still be lower because of the prior loss
GDP records the value of current final production, such as construction services and replacement goods. It does not automatically subtract the destruction of houses, equipment, or other wealth caused by the disaster. Thus reconstruction can increase measured GDP while the community remains worse off than before because it is replacing lost assets. Option C is correct; A and B overstate what GDP measures, and D wrongly excludes final reconstruction expenditure.
Frequently asked questions
What is the correct answer to this question?
Reconstruction raises output, but net welfare may still be lower because of the prior loss
Why is this the correct answer?
GDP records the value of current final production, such as construction services and replacement goods. It does not automatically subtract the destruction of houses, equipment, or other wealth caused by the disaster. Thus reconstruction can increase measured GDP while the community remains worse off than before because it is replacing lost assets. Option C is correct; A and B overstate what GDP measures, and D wrongly excludes final reconstruction expenditure.
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.
