Why is the loss from destruction of many old houses in a natural disaster not fully shown in GDP?
Answer and explanation
Correct answer: Because GDP measures current production flow and not the full loss of existing asset stocks
The governing concept is the distinction between a flow and a stock. GDP records the value of final goods and services produced during a period, so it is a flow measure. The destruction of old houses is a loss of existing wealth or an asset stock; it was not necessarily current production in the period. Therefore option D is correct. Reconstruction may later raise GDP, but that does not erase the original stock loss.
Frequently asked questions
What is the correct answer to this question?
Because GDP measures current production flow and not the full loss of existing asset stocks
Why is this the correct answer?
The governing concept is the distinction between a flow and a stock. GDP records the value of final goods and services produced during a period, so it is a flow measure. The destruction of old houses is a loss of existing wealth or an asset stock; it was not necessarily current production in the period. Therefore option D is correct. Reconstruction may later raise GDP, but that does not erase the original stock 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.
