Does Spending Measure Welfare? Suppose a community spends $1 million on salaries and equipment for its police department. Because it believes that citizens are now more law-abiding, the community...

Does Spending Measure Welfare? Suppose a community spends $1 million on salaries and equipment for its police department. Because it believes that citizens are now more law-abiding, the community decides to cut back on the number of police it employs. As a result, the community now spends $800,000 less on police officers. The crime rate remains the same.

a. What happens to measured GDP?

b. Does GDP accurately reflect welfare in this case? Discuss the underlying issue that this example poses.