Question

4. (a) What is the importance of measuring per capita GDP?

          (b) How do pollution and crime affect GDP?

5.       What is the underground economy? How does it affect GDP calculations? Provide three examples of underground economy transactions.

Note :- Please avoid Plagiarism

Answer 1

4 a) Per capita GDP stands for Gross Domestic Product per person. It is derived from dividing the total GDP of an economy by the population. Per capita GDP is an important indicator as:

> It helps to evaluate a country's economic performance

>It helps in making comparisions with different countries of the average living standards of the people and their economic well being.

b) Pollution and crime affects the GDP negatively. High crime in a country affects foreign and domestic investments in an economy, it reduces competitiveness of firms, leads to allocation and reallocation of resources inefficiently in an economy. Pollution has an indirect effect on the GDP. An increase in pollution affects the quality and productivity of an economy's resources such as labor. This in turn thus affects the GDP.

5) The underground economy or the black market or the informal economy refers to the economic transactions that are considered illegal because the goods and services that are traded are unlawful in nature or the transactions fail to adhere with the governmental reporting requirements.

The transactions in the underground economy are not recorded in the calculation of GDP because it is difficult to know the extent of economic transactions that take place in the underground economy and also their accountability given they are illegal activities. Thus they distort the accuracy and leads to underprediction of the GDP of an economy.

Some examples of underground economy are sale of drugs, under the table transactions like corruption, human trafficking, smuggling and illegal gambling.