Why is the loss of existing assets destroyed in a natural disaster not fully shown in GDP?
Answer and explanation
Correct answer: GDP measures current production flow and not the full loss of asset stocks
GDP is a flow measure: it records the value of goods and services produced during a particular period. A natural disaster can destroy houses, machines and infrastructure that were produced in earlier periods, causing a loss of wealth or an asset stock. That destruction is not itself current production. Reconstruction may later raise GDP, but it does not fully erase the original welfare loss, so A is correct.
Frequently asked questions
What is the correct answer to this question?
GDP measures current production flow and not the full loss of asset stocks
Why is this the correct answer?
GDP is a flow measure: it records the value of goods and services produced during a particular period. A natural disaster can destroy houses, machines and infrastructure that were produced in earlier periods, causing a loss of wealth or an asset stock. That destruction is not itself current production. Reconstruction may later raise GDP, but it does not fully erase the original welfare loss, so A is correct.
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.
