What is possible when reconstruction spending rises after a natural disaster?
Answer and explanation
Correct answer: Reconstruction may raise GDP while the disaster may have reduced welfare
GDP records the value of current market production, so construction and repair undertaken after a disaster can increase measured GDP. However, welfare also depends on lives lost, homes destroyed, insecurity and environmental damage. Thus option D is correct: reconstruction may raise GDP even when the disaster has lowered overall welfare. The other options use unjustified absolute claims.
Frequently asked questions
What is the correct answer to this question?
Reconstruction may raise GDP while the disaster may have reduced welfare
Why is this the correct answer?
GDP records the value of current market production, so construction and repair undertaken after a disaster can increase measured GDP. However, welfare also depends on lives lost, homes destroyed, insecurity and environmental damage. Thus option D is correct: reconstruction may raise GDP even when the disaster has lowered overall welfare. The other options use unjustified absolute claims.
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.
