Assume that the size of the underground economy increases both absolutely and relatively over time. As a result,
A) real GDP will rise more rapidly than nominal GDP.
B) GDP will tend to increasingly understate the level of output through time.
C) GDP will tend to increasingly overstate the level of output through time.
D) the accuracy of GDP will be unaffected through time.

Question

Quizplus · Accepted Answer

GDP only includes goods and services produced and exchanged in the formal economy, so as the underground economy grows, the official measure of GDP will increasingly understate the true level of economic output.

Assume That the Size of the Underground Economy Increases Both