In which situation will GDP rise without a necessary increase in real social welfare?
Answer and explanation
Correct answer: Higher medical spending caused by pollution-related illness
Medical treatment purchased in the market is counted as expenditure on current services and can therefore raise GDP. However, if the spending is caused by pollution-related illness, it is defensive expenditure: it repairs or offsets damage rather than representing a genuine improvement in well-being. Unpaid care, clean air, and leisure may improve welfare but are not necessarily recorded as market output in GDP.
Frequently asked questions
What is the correct answer to this question?
Higher medical spending caused by pollution-related illness
Why is this the correct answer?
Medical treatment purchased in the market is counted as expenditure on current services and can therefore raise GDP. However, if the spending is caused by pollution-related illness, it is defensive expenditure: it repairs or offsets damage rather than representing a genuine improvement in well-being. Unpaid care, clean air, and leisure may improve welfare but are not necessarily recorded as market output 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.
