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.
Frequently asked questions
What is the correct answer to this question?
Failure to record them may understate actual production
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
