Why is the value of old assets destroyed by a natural disaster not directly deducted from 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 final goods and services produced during a particular period. A natural disaster destroys an existing stock of buildings, machines, or other assets, and that loss is not itself current production. Reconstruction spending after the disaster may increase GDP because it involves new production, but this does not mean the original asset loss is directly deducted. Therefore, option 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 final goods and services produced during a particular period. A natural disaster destroys an existing stock of buildings, machines, or other assets, and that loss is not itself current production. Reconstruction spending after the disaster may increase GDP because it involves new production, but this does not mean the original asset loss is directly deducted. Therefore, option 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.
