If spending on security services rises because crime increases, what divergence may occur between GDP and welfare?
Answer and explanation
Correct answer: GDP may rise while welfare falls because of insecurity
GDP counts paid security services as market production, so increased expenditure can raise measured output. It does not, however, subtract the fear, injury, property loss and reduced freedom caused by rising crime. Thus defensive spending may increase GDP while the underlying quality of life falls. Option C correctly captures this divergence; the words “necessarily” in A and the claims in B and D are unsupported.
Frequently asked questions
What is the correct answer to this question?
GDP may rise while welfare falls because of insecurity
Why is this the correct answer?
GDP counts paid security services as market production, so increased expenditure can raise measured output. It does not, however, subtract the fear, injury, property loss and reduced freedom caused by rising crime. Thus defensive spending may increase GDP while the underlying quality of life falls. Option C correctly captures this divergence; the words “necessarily” in A and the claims in B and D are unsupported.
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.
