Question

2. Explain whether each of the following situations increase GDP or not and whether they are likely to increase oera welfare. (By welfare I mean well-being of the people in the economy.) (a) An earthquake hits southern California leading to a massive rebuild- ing effort. (b) The government decides to build new public transportation in south ern California. (c) The government hires 50 new policemen to patrol downtown San Diego

Answer 1

a) An earthquake hits southern California leading to massive rebuilding efforts would help the victims to regain their loss of property due to the disaster but will not increase their welfare or GDP.

b) The government decides to build new public transportation in southern California would increase government expenditure and increase GDP as workers would be employed in construction and it will increase well being of the people.

c) The government hires 50 new policemen and pay them compensation which includes in the GDP and patrolling would reduce crime rate means well being would also increase.

d) An association of homeowners forms watch group would not generate income hence no increase in GDP.