Question

What is the underground economy and how could it hurt the Australian economy? What has the Australian federal government done to combat the underground economy?

Answer 1

Meaning:

An economy refers to the system of economic transactions that takes place around us. A underground economy is the economy where these economic transactions takes place illegally. It is also called by other names like black market, shadow economy etc. For example sale/purchase of drugs, prostitution etc.

The effect on Australian economy:

We already know what gdp is. It is the measure of economic growth of a country. It basically means the money value of all the good/services produced in a country. GDP has the following components:

1. Personal expenditure/spending

2. Government expenditure

3. Business spending

4. Net exports.

All the components together constitute the GDP.

So how does shadow economy affect the country?

Shadow economy or the underground economy are those transactions that are not recorded in the GDP. This will give us a wrong value of GDP. And ultimately all the policies or major decisions that Australia will male regarding economic growth will be based on false figures. Hence this is how shadow economy will affect the Australian economy.

The solution:

So what can be done?

1. Rules and Regulations must be strictly implemented

2. Harsh punishments

3. Spearing social awareness about the drawbacks of the underground economy

4. Legalise some aspects of the shadow economy.

5. Adoption of 100% e-payment system.

Thank You!