Question

Informal activity is naturally restricted in various ways from ever functioning as efficiently as it could were it completely legalized and freed from the restrictions that force the activity into informality. They include:

Select one:

a. informal production and commerce being subject to less risk because it operates outside the law.

b. the lack of formal property rights in the informal sector, due to the fact that productive units do not technically exist and the owners of the property are technically criminals, which means that intertemporal transactions are difficult.

c. the lack of formal property rights, which means informal sector borrowers have to come up with collateral before they can borrow.

d. All of the above.

e. None of the above.

Answer 1

Answer is B

informal activities are done by criminals and no productive activities technical exist there. The owners of the property are criminals and intertempotal transactions are difficult. For example : organ trafficking is an illegal activity, felling of trees, bribery, black money, human trafficking, smuggling etc. All these are informal and illegal activities and do not exist any productive activities. The property rights are vested with the criminals and scoundrels. The lack of formal property right is responsible for this. It adversely affects the efficient and smooth functioning of the economy.

Suppose back money is the unaccounted money which creates inflation in the economy and huge revenue loss to the government. It leads to instabilities in the macro economic variables etc. So legally such activities are strictly prohibited. It can destroy the normal functions of an economy.