If government spending on prisons rises because crime has increased, how should GDP and welfare be interpreted?
Answer and explanation
Correct answer: GDP may rise but higher crime may reduce welfare
The governing concept is that GDP counts paid government services, not the reason those services became necessary. Prison operation, staff, and related services are part of measured production, so greater spending may increase GDP. However, if the increase results from more crime, society is facing insecurity, victims, and prevention costs. Consequently welfare may decline even as GDP rises, making option D correct. The other options either deny production or ignore the social harm.
Frequently asked questions
What is the correct answer to this question?
GDP may rise but higher crime may reduce welfare
Why is this the correct answer?
The governing concept is that GDP counts paid government services, not the reason those services became necessary. Prison operation, staff, and related services are part of measured production, so greater spending may increase GDP. However, if the increase results from more crime, society is facing insecurity, victims, and prevention costs. Consequently welfare may decline even as GDP rises, making option D correct. The other options either deny production or ignore the social harm.
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.
