An increase in the size of the underground economy would
A)have no effect on the official unemployment rate.
B)cause the official unemployment rate to fall as more people find jobs outside the formal economy.
C)cause the labour force participation rate to rise.
D)cause the labour force participation rate to fall.
E)raise the employment population ratio as reported by Statistics Canada.

Question

Quizplus · Accepted Answer

The underground economy consists of activities that are not registered or reported to the government, and therefore not included in official statistics. As a result, an increase in the size of the underground economy would lead to a decrease in the reported size of the labour force, as fewer people would be counted as participating in the formal economy. This would cause the labor force participation rate to fall, as it is calculated by dividing the number of people in the labor force by the civilian noninstitutional population. The official unemployment rate may or may not be affected, depending on whether these individuals who are working in the underground economy were previously counted as unemployed or not. The employment population ratio as reported by Statistics Canada would also be affected, as it is calculated by dividing the number of employed persons by the civilian noninstitutional population.

An Increase in the Size of the Underground Economy Would