If domestic output rises along with faster depletion of forests, which limitation of GDP is revealed?
Answer and explanation
Correct answer: Failure to fully show depletion of natural resources
GDP records the market value of current production, but it does not fully subtract the loss of natural capital such as forests, minerals, or biodiversity. Therefore, output may increase while environmental assets are being depleted, creating an incomplete picture of sustainable economic welfare. This limitation motivates measures such as green GDP, which attempt to account for environmental damage and resource depletion.
Frequently asked questions
What is the correct answer to this question?
Failure to fully show depletion of natural resources
Why is this the correct answer?
GDP records the market value of current production, but it does not fully subtract the loss of natural capital such as forests, minerals, or biodiversity. Therefore, output may increase while environmental assets are being depleted, creating an incomplete picture of sustainable economic welfare. This limitation motivates measures such as green GDP, which attempt to account for environmental damage and resource depletion.
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.
