If crime increases and spending on security services rises, what may happen to GDP?
Answer and explanation
Correct answer: GDP may rise while welfare falls
GDP records market expenditure on final goods and services, not the reason that generated the expenditure. If rising crime causes households, firms, or the government to purchase more security services, that additional market production can raise GDP. However, crime reduces safety and quality of life, so welfare may decline at the same time. Thus option C is correct; the other options wrongly assume GDP and welfare always move together.
Frequently asked questions
What is the correct answer to this question?
GDP may rise while welfare falls
Why is this the correct answer?
GDP records market expenditure on final goods and services, not the reason that generated the expenditure. If rising crime causes households, firms, or the government to purchase more security services, that additional market production can raise GDP. However, crime reduces safety and quality of life, so welfare may decline at the same time. Thus option C is correct; the other options wrongly assume GDP and welfare always move together.
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.
