If real GDP rises but the value of natural capital falls rapidly, which limitation of ordinary GDP becomes evident?
Answer and explanation
Correct answer: It does not fully adjust for depletion of natural wealth
Real GDP records the inflation-adjusted value of current final production, but ordinary GDP does not fully subtract the depletion of forests, minerals, soil, biodiversity, or other natural assets used in production. Consequently, measured growth may coexist with a decline in sustainable wealth. Option C identifies the limitation and points toward green or environmentally adjusted accounting; A, B, and D are incorrect descriptions.
Frequently asked questions
What is the correct answer to this question?
It does not fully adjust for depletion of natural wealth
Why is this the correct answer?
Real GDP records the inflation-adjusted value of current final production, but ordinary GDP does not fully subtract the depletion of forests, minerals, soil, biodiversity, or other natural assets used in production. Consequently, measured growth may coexist with a decline in sustainable wealth. Option C identifies the limitation and points toward green or environmentally adjusted accounting; A, B, and D are incorrect descriptions.
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.
