Question

Explain the effects that a large informal sector can have on the measurement of Real GDP in the presence of price controls. How do economists attempt to measure the informal sector?

Answer 1

Ans:- The informal sector is otherwise known as the black economy (underground economy).Informal economy or informal sector is also a portion of nations economy that is not known as normal revenue (income) base because persons who work in the informal sectors are not reveal their real income and not paying taxes. Street venders are the best example. The large informal sectors are contribute in real GDP. The informal sector such as household employment are increased 25% extra. Many persons have no job opportunities but the informal sector provide them jobs and way to make an income. It dismisses some of the burden of unemployment ,it decreases poverty and also to contribute to the economy. So the large informal sectors are also the measure of real GDP.

The economist most commonly used technique for measuring informal sectors are surveys. The survey reveals the approximate amount of informal sector and informal economy . Majority of survey are conducted in the major cities.