PRC-3 · Chapter 13 · Question 17 of 50
A country has a massive informal sector where mechanics, tutors, and street vendors operate entirely in 'cash-in-hand' transactions to avoid taxes. How does this affect the country's official GDP figures?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It causes the official GDP to severely understate actual production
Explanation
The shadow or underground economy involves unrecorded transactions that bypass official statistical agencies, meaning the published GDP figures are lower than the true level of economic activity.
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