What problem is created by ignoring environmental loss in GDP?
Answer and explanation
Correct answer: GDP growth may overstate the improvement in welfare
GDP records the value of measured production but generally does not subtract all environmental costs, such as pollution, loss of biodiversity, depletion of natural resources, or damage to health. If production increases while these costs also increase, reported GDP may suggest economic progress even though people’s quality of life declines. Therefore, GDP growth can overstate the actual improvement in social welfare.
Frequently asked questions
What is the correct answer to this question?
GDP growth may overstate the improvement in welfare
Why is this the correct answer?
GDP records the value of measured production but generally does not subtract all environmental costs, such as pollution, loss of biodiversity, depletion of natural resources, or damage to health. If production increases while these costs also increase, reported GDP may suggest economic progress even though people’s quality of life declines. Therefore, GDP growth can overstate the actual improvement in social 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.
