What is the underground economy? How does it affect GDP ...

[WWatsford]

What is the underground economy? How does it affect GDP calculations? Provide three examples of underground economy transactions.

Question 2

Economics is:
 a. concerned with the problem of scarce resources combined with unlimited wants.
  b. the study of how to make money in the stock market.
  c. highly theoretical and has little practical application.
  d. primarily concerned with day-to-day business decision making.
  e. a decision making process involving individuals and firms rather than governments.

[TDubDCFL]

Answer to Question 1

The underground economy includes both legal and illegal activities. Payments for services in the underground economy are not reported to governmental authorities. As a result, GDP calculations underestimate the level of productive activity in the economy. Examples will vary, but may include illegal gambling, prostitution, and drug transactions.

Answer to Question 2

a