Which limitation of ordinary GDP appears when natural forests are cut and timber is sold?
Answer and explanation
Correct answer: Timber value is added but loss of forest wealth is not fully deducted
When timber is sold, the value of the recorded market production is added to GDP. Ordinary GDP, however, generally does not deduct the full depletion of the forest as a natural asset or the lost ecological services, such as biodiversity and carbon absorption. Thus measured output may rise even while national wealth and environmental welfare decline. D correctly describes this limitation; A, B and C deny the relevant accounting issue.
Frequently asked questions
What is the correct answer to this question?
Timber value is added but loss of forest wealth is not fully deducted
Why is this the correct answer?
When timber is sold, the value of the recorded market production is added to GDP. Ordinary GDP, however, generally does not deduct the full depletion of the forest as a natural asset or the lost ecological services, such as biodiversity and carbon absorption. Thus measured output may rise even while national wealth and environmental welfare decline. D correctly describes this limitation; A, B and C deny the relevant accounting issue.
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.
