What should be understood if repair spending rises after a natural disaster in GDP?
Answer and explanation
Correct answer: GDP may rise, but welfare loss may also occur
Payments for rebuilding houses, roads, and other damaged assets purchase current goods and services, so they can increase measured GDP. Nevertheless, the disaster may have destroyed property, caused injuries, displacement, and emotional hardship. GDP records the reconstruction activity but does not fully subtract the original welfare loss.
Frequently asked questions
What is the correct answer to this question?
GDP may rise, but welfare loss may also occur
Why is this the correct answer?
Payments for rebuilding houses, roads, and other damaged assets purchase current goods and services, so they can increase measured GDP. Nevertheless, the disaster may have destroyed property, caused injuries, displacement, and emotional hardship. GDP records the reconstruction activity but does not fully subtract the original welfare loss.
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.
