A nation that experiences a boom in its timber industry by clear-cutting its old-growth forests will see a corresponding rise in its standard measure of total economic output. This rise accurately reflects a sustainable increase in the nation's economic well-being.
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The principle of adjusting a nation's economic output by subtracting the value of depleted natural resources, such as minerals and timber, is based on a logical parallel to which of the following standard economic adjustments?
A nation that experiences a boom in its timber industry by clear-cutting its old-growth forests will see a corresponding rise in its standard measure of total economic output. This rise accurately reflects a sustainable increase in the nation's economic well-being.
Rationale for Modifying Economic Output Measures
Critique of Unadjusted Economic Growth
To calculate a sustainable measure of national income, adjustments for the consumption of capital assets are necessary. Match each economic event with the category that best describes its impact on the nation's stock of capital.
A country reports a gross economic output of $1 trillion for a given year. During that year, the value of its machinery and buildings decreased by $80 billion due to wear and tear. In addition, the value of its extracted and sold non-renewable mineral reserves amounted to $50 billion. To calculate a more sustainable measure of the country's net output, a total of $______ billion, representing the consumption of both man-made and natural assets, must be subtracted from the gross figure.
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Country X reports a 7% annual increase in its total economic output, driven almost entirely by rapidly harvesting and selling its ancient forests. Country Y reports a 3% annual increase, with its economy based on services and manufacturing, while also investing heavily to maintain its existing factories and equipment. Considering the principle that a true measure of economic performance must account for the 'using up' of all productive assets, which statement best analyzes the situation?
Critique of a 'Growth-First' Economic Policy