After a natural disaster, reconstruction expenditure rises sharply. Why can a welfare conclusion based only on higher GDP be misleading?
Answer and explanation
Correct answer: Because additional production may merely replace destroyed assets and offset suffering
Reconstruction uses labour, materials, and services, so the resulting production is included in GDP. However, the disaster may have destroyed homes, infrastructure, possessions, and lives, while causing fear and displacement. GDP records the rebuilding activity but does not subtract the original loss or fully value the suffering. Such spending is therefore partly defensive or restorative rather than proof of improved welfare.
Frequently asked questions
What is the correct answer to this question?
Because additional production may merely replace destroyed assets and offset suffering
Why is this the correct answer?
Reconstruction uses labour, materials, and services, so the resulting production is included in GDP. However, the disaster may have destroyed homes, infrastructure, possessions, and lives, while causing fear and displacement. GDP records the rebuilding activity but does not subtract the original loss or fully value the suffering. Such spending is therefore partly defensive or restorative rather than proof of improved welfare.
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.
