Which option is most likely to make GDP growth overstate welfare growth?
Answer and explanation
Correct answer: Polluting production rises rapidly while environmental damage is unrecorded
GDP measures the market value of production but normally does not subtract the full social cost of pollution. If polluting output rises rapidly, measured GDP can increase even while air quality, health, and environmental conditions worsen. Hence option C best shows GDP overstating welfare growth. Falling illness expenditure, more voluntary leisure, and a more equal distribution generally improve welfare rather than create this overstatement.
Frequently asked questions
What is the correct answer to this question?
Polluting production rises rapidly while environmental damage is unrecorded
Why is this the correct answer?
GDP measures the market value of production but normally does not subtract the full social cost of pollution. If polluting output rises rapidly, measured GDP can increase even while air quality, health, and environmental conditions worsen. Hence option C best shows GDP overstating welfare growth. Falling illness expenditure, more voluntary leisure, and a more equal distribution generally improve welfare rather than create this overstatement.
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.
