Government spending on pollution control may be added to GDP. Why is it not treated as a complete welfare gain?
Answer and explanation
Correct answer: Because it may be spending to reduce existing environmental damage
The governing concept is defensive expenditure. Pollution-control spending may be counted as government production or final expenditure in GDP, but it can merely prevent, repair or offset damage created by pollution. The recorded expenditure does not mean society has gained an equal amount of new welfare. Hence option B is correct; government spending can be included and control equipment can be a final product.
Frequently asked questions
What is the correct answer to this question?
Because it may be spending to reduce existing environmental damage
Why is this the correct answer?
The governing concept is defensive expenditure. Pollution-control spending may be counted as government production or final expenditure in GDP, but it can merely prevent, repair or offset damage created by pollution. The recorded expenditure does not mean society has gained an equal amount of new welfare. Hence option B is correct; government spending can be included and control equipment can be a final product.
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.
