Assume that the size of the "underground economy" increases both absolutely and relatively over time.As a result

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The "underground economy" comprises economic activities that are not reported to the government, and hence not included in the official measurement of GDP. As the size of the underground economy increases over time, GDP will tend to increasingly understate the level of output since it is not capturing these economic activities. Hence, choice B is the correct answer. Choice A is incorrect because real GDP is adjusted for changes in the price level, and hence it is not affected by changes in the level of output. Choice C is incorrect because if anything, GDP would be overstating the level of output if it assumed that all economic activities were reported to the government. Choice D is incorrect because the accuracy of GDP is affected by changes in the size of the underground economy, which makes it less reliable as a measure of economic activity.

Assume That the Size of the "Underground Economy" Increases Both