1. What is meant by the underground economy?

Question

1. What is meant by the underground economy?
3. Is the output of the underground economy counted in measuring GDP? Why or Why not?
2. What are some of the different ways in which economists try to measure the size of the underground economy?

Answer 1

The underground economy is all transactions which are not accounted for in regular GDP. These can include black markets such as drugs, or other innocuous things such as the teenager who mows lawns but does not report the income. Thus, the output of the economyh is not counted in measured GDP. Economists generally guestimate the size of the underground economy. It varies on estimates, but I believe one reasonable estimate I had seen was as much as 20% of GDP.

Hope this helps.