PRC-3 · Chapter 13 · Question 29 of 50
A nation suffers from a large 'shadow' or 'underground' economy where mechanics and tutors deal purely in untaxed, unrecorded cash. What is the impact of this on official statistics?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The official GDP will severely understate true production
Explanation
Because transactions in the informal economy are totally unrecorded, they bypass statistical agencies, causing the official GDP to be significantly lower than actual economic activity.
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