PRC-3 · Chapter 13 · Question 7 of 50
A country has a massive 'underground economy' consisting of cash-in-hand repairs, unregistered tutoring, and illegal trade. What is the impact of this on the official GDP statistics?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The official GDP will understate the true economic activity
Explanation
Because transactions in the informal or underground economy are unrecorded and untaxed, they are entirely missed by official statistics, causing GDP to understate the actual production.
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