If the government spends heavily on cleaning a polluted river, how does conventional GDP respond?
Answer and explanation
Correct answer: It may add the cleanup service but does not directly deduct the earlier pollution damage
Conventional GDP adds the value of current goods and services produced, including government-provided cleanup services when their production is measured through expenditure or cost. However, GDP does not automatically subtract the loss of environmental quality, health, or ecosystem services caused by the earlier pollution. Consequently, cleanup can raise measured GDP even when society is merely repairing damage, making GDP an imperfect welfare indicator.
Frequently asked questions
What is the correct answer to this question?
It may add the cleanup service but does not directly deduct the earlier pollution damage
Why is this the correct answer?
Conventional GDP adds the value of current goods and services produced, including government-provided cleanup services when their production is measured through expenditure or cost. However, GDP does not automatically subtract the loss of environmental quality, health, or ecosystem services caused by the earlier pollution. Consequently, cleanup can raise measured GDP even when society is merely repairing damage, making GDP an imperfect welfare indicator.
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.
