If real GDP rises by four percent but the estimated cost of environmental damage rises by six percent what is the most appropriate conclusion?
Answer and explanation
Correct answer: Net welfare improvement may be doubtful or negative
The governing idea is that GDP records gross market output, not every social cost. A 4% rise in real GDP shows greater inflation-adjusted production, but a 6% rise in environmental damage can offset or exceed the associated benefit. Hence B is correct: net welfare improvement is uncertain and could be negative. A ignores costs, while C and D are false.
Frequently asked questions
What is the correct answer to this question?
Net welfare improvement may be doubtful or negative
Why is this the correct answer?
The governing idea is that GDP records gross market output, not every social cost. A 4% rise in real GDP shows greater inflation-adjusted production, but a 6% rise in environmental damage can offset or exceed the associated benefit. Hence B is correct: net welfare improvement is uncertain and could be negative. A ignores costs, while C and D are false.
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.
