If reconstruction spending after a natural disaster raises GDP, does it indicate an equal rise in welfare?
Answer and explanation
Correct answer: No, because the earlier loss of property and life must also be considered
GDP records the market value of current production, so reconstruction activity can increase measured GDP. However, reconstruction may merely replace houses, roads and other assets destroyed by the disaster; it does not erase deaths, suffering, lost possessions or ecological damage. Therefore, GDP can rise without an equal improvement in net welfare. Option D is incorrect because eligible reconstruction output is included in GDP.
Frequently asked questions
What is the correct answer to this question?
No, because the earlier loss of property and life must also be considered
Why is this the correct answer?
GDP records the market value of current production, so reconstruction activity can increase measured GDP. However, reconstruction may merely replace houses, roads and other assets destroyed by the disaster; it does not erase deaths, suffering, lost possessions or ecological damage. Therefore, GDP can rise without an equal improvement in net welfare. Option D is incorrect because eligible reconstruction output is included in GDP.
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.
