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How can underground economy activities affect the assessment of GDP and welfare?

Answer and explanation

Correct answer: Failure to record them may understate actual production

The underground economy includes productive market activities that are concealed from authorities, often to avoid taxes or regulation. If such transactions are not reported or captured in statistical surveys, official GDP can be lower than the economy’s actual production. The understatement may also distort welfare comparisons because measured income and employment appear smaller. D is correct; hidden activity is not automatically exports, government service or valueless production.

Related tags

Underground EconomyUnreported OutputGdp LimitationGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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