How the Underground Economy Effects Gross Domestic Product

From the past mobsters swarming New York City, to the modern day thugs in today’s contemporary world, the informal economy or more commonly known as the underground economy has existed. The Informal economy has been an issue that many economists cannot distinguish as to whether it will positively or negatively have an impact on our world then or today. The informal sector of the economy includes ranges to a variety of different goods and services that are not recorded, legal, or illegal. Some illegal activities involve the purchase, sale, and transport of drugs in addition to prostitution and guns, while others are conduct off the book transactions, “which is income from legal sources, often found in the construction and services industries, where taxes are not withheld or paid” (Grammy, 2011). The underground economy is one of the many shortcomings of the Gross Domestic Product (GDP), the market value of all final goods and services produced within a country, which create complications for one to accurately measure the wellbeing of the economy. The greater the size of the underground economy, the smaller the Gross Domestic Product is. The Informal economy possesses a negative effect on the economy of the United states, and other developing countries, thus effecting the Gross Domestic Product by misrepresenting the employment rate of that economy, damaging developing countries, and citizens not contributing to taxes that leads to the depleting of our world.

The Gross Domestic Product has many shortcomings associated with it, leading people to believe it is not accurate when measuring the overall economic well-being. With the informal economy on the rise, the underground sector is almost 10 percent of the GDP, and in Europe...

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...ax which depletes our world and our economy. Overall, the informal sector has a huge impact on the measure of GDP, though it will never be truly know how well or how poor our economy is until the goods and services being sold unrecorded are minimized.

References

Grammy, A. (2011, November 28). The Underground Economy. The CSUB Business Blog. Retrieved November 29, 2013, from http://www.csub.edu/kej/documents/economic_rsch/2011-11-28.pdf

How does underground economic activity affect the value of GDP? [Online forum post]. (n.d.). Retrieved from http://www2.dsu.nodak.edu/users/fernando/office/courses/exit_exam/Question_13.pdf

The Underground Economy Affects GDP Accuracy and Taxes. (2013, April 27). The Underground Economy Affects GDP Accuracy and Taxes. Retrieved November 29, 2013, from http://www.econlife.com/underground-economy-how-much-did-the-gdp-really-grow/