Questions: Siring Up the Economy Using GDP - End of Chapter Problem In 2010, 4.9 million barrels of oil spilled into the Gulf of Mexico due to an explosion on an oil rig. Describe both the negative and positive impact this disaster had on U.S. GDP. Explain how this example highlights the limitations of GDP. a. Which statement describes the possible negative and positive impacts the oil spill had on GDP? It caused environmental degradation which negatively impacted GDP, whereas the spill response and cleanup created jobs, which positively impacted GDP. It reduced the number of tourists, which negatively impacted GDP, but the spill response and cleanup created jobs, which positively impacted GDP. It reduced the number of tourists, which negatively impacted GDP; however, it also increased the cash flow in the "shadow economy," which positively impacted GDP. It destroyed natural resources, which negatively impacted GDP, whereas the prices of oil increased, which positively impacted GDP.

The answer is the second one: It reduced the number of tourists, which negatively impacted GDP, but the spill response and cleanup created jobs, which positively impacted GDP.

Explanation for each option:

1. It caused environmental degradation which negatively impacted GDP, whereas the spill response and cleanup created jobs, which positively impacted GDP.

   • This statement is partially correct. While environmental degradation is a significant negative impact, it does not directly affect GDP calculations. GDP measures economic activity, and environmental degradation is often not directly reflected in GDP figures unless it affects economic output or consumption.

2. It reduced the number of tourists, which negatively impacted GDP, but the spill response and cleanup created jobs, which positively impacted GDP.

   • This statement is correct. The oil spill likely deterred tourists from visiting affected areas, reducing spending in the tourism sector and negatively impacting GDP. Conversely, the cleanup efforts required labor and resources, which increased economic activity and positively impacted GDP.

3. It reduced the number of tourists, which negatively impacted GDP; however, it also increased the cash flow in the "shadow economy," which positively impacted GDP.

   • This statement is incorrect. While the reduction in tourism is a valid negative impact, the notion of increased cash flow in the "shadow economy" is speculative and not typically included in GDP calculations, as GDP measures the formal economy.

4. It destroyed natural resources, which negatively impacted GDP, whereas the prices of oil increased, which positively impacted GDP.

   • This statement is misleading. The destruction of natural resources does not directly affect GDP unless it impacts production or consumption. While oil prices might fluctuate due to supply disruptions, the direct impact on GDP from price changes is complex and not necessarily positive.

This example highlights the limitations of GDP as a measure of economic well-being. GDP does not account for environmental degradation, loss of biodiversity, or the depletion of natural resources. It also does not consider the distribution of income or the informal economy. GDP focuses on economic activity and output, which can sometimes increase due to negative events like disasters, as seen with the economic activity generated by cleanup efforts.