Passage: 'Ecological economists argue that gross domestic product (GDP) is a fundamentally flawed metric of national wellbeing because it treats the liquidation of natural capital as income. When an ancient forest is clear-cut for timber, GDP records the economic transaction as positive growth, while registering zero depreciation for the lost biodiversity, soil stability, and carbon storage. A nation could theoretically exhaust its entire resource base while appearing to achieve unprecedented economic expansion on national balance sheets.'
What fundamental accounting distortion does the passage identify in GDP measurement?
Answer and explanation
Correct answer: B. It tallies the exploitation of natural assets as income without subtracting the depletion of natural capital
- Step 1: Review the ecological critique of GDP: standard GDP accounts for resource consumption as income while ignoring natural capital depreciation.
- Step 2: By treating the depletion of irreplaceable ecological assets as economic gain, GDP distorts sustainability assessments.
- Step 3: Consequently, GDP is flawed because it tallies the exploitation of natural assets as income without subtracting capital depletion.
Answer
It tallies the exploitation of natural assets as income without subtracting the depletion of natural capital.
Why not the others: Overestimating informal childcare is inaccurate because GDP famously excludes unpaid domestic labor altogether; applying fluctuating exchange rates is a monetary conversion issue rather than an ecological critique; excluding renewable capital investments misstates GDP accounting, which does capture capital formation.
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