GDP may rise because spending on pollution control increases. What caution applies to welfare?
Answer and explanation
Correct answer: Welfare need not rise because of pollution damage
Expenditure on pollution-control equipment and services is recorded as production and can increase GDP. However, GDP does not automatically subtract the health, environmental, and quality-of-life damage caused by pollution. Consequently, an increase in GDP from defensive or remedial spending may occur without a corresponding increase in social welfare.
Frequently asked questions
What is the correct answer to this question?
Welfare need not rise because of pollution damage
Why is this the correct answer?
Expenditure on pollution-control equipment and services is recorded as production and can increase GDP. However, GDP does not automatically subtract the health, environmental, and quality-of-life damage caused by pollution. Consequently, an increase in GDP from defensive or remedial spending may occur without a corresponding increase in social 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.
