If reconstruction spending rises after a natural disaster, GDP may rise, but why may welfare not necessarily rise?
Answer and explanation
Correct answer: Because the spending may replace losses rather than create new prosperity
Reconstruction creates measured economic activity, so payments for construction, materials, and labour can increase GDP. However, the spending may merely restore houses, roads, or machines destroyed by the disaster. GDP does not fully subtract the loss of existing assets, human suffering, disruption, or reduced quality of life; therefore, a higher GDP figure does not automatically mean greater welfare.
Frequently asked questions
What is the correct answer to this question?
Because the spending may replace losses rather than create new prosperity
Why is this the correct answer?
Reconstruction creates measured economic activity, so payments for construction, materials, and labour can increase GDP. However, the spending may merely restore houses, roads, or machines destroyed by the disaster. GDP does not fully subtract the loss of existing assets, human suffering, disruption, or reduced quality of life; therefore, a higher GDP figure does not automatically mean greater welfare.
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.
