Principles of Macroeconomics 7th Edition

Published by South-Western College
ISBN 10: 1-28516-591-8
ISBN 13: 978-1-28516-591-2

Chapter 10 - Measuring a Nation's Income - Questions For Review - Page 214: 8

Answer

Countries want a higher GDP to enjoy a higher standard of living but high GDP does not always mean a positive event. Natural disasters raise GDP with cleanup spending and repairs but this would decline standard of living as it causes a supply shock to people who may have limited resources like food. Another thing is pollution. Trying to reduce pollution discourages companies from production to meet pollution regulations and while stopping pollution laws can raise GDP this is an externality because it would cause more disease and sickness.

Work Step by Step

To answer this question you must understand how GDP is found ( consumption spending, investment spending, government spending, and net exports) and how increases in one of these could be a detriment to society as externalities arise like pollution.
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