If reconstruction spending after a natural disaster raises nominal and real GDP, what does this increase not prove?
Answer and explanation
Correct answer: All social losses were fully offset
Reconstruction spending represents newly produced construction and repair services, so it can increase both nominal and real GDP. However, GDP does not subtract the destruction of homes, infrastructure, lives, security, and well-being caused by the disaster. Consequently, a higher GDP cannot prove that every social loss was compensated. Option B is correct; the other statements can be true accounting observations.
Frequently asked questions
What is the correct answer to this question?
All social losses were fully offset
Why is this the correct answer?
Reconstruction spending represents newly produced construction and repair services, so it can increase both nominal and real GDP. However, GDP does not subtract the destruction of homes, infrastructure, lives, security, and well-being caused by the disaster. Consequently, a higher GDP cannot prove that every social loss was compensated. Option B is correct; the other statements can be true accounting observations.
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.
