PLEASE GIVE YOUR OWN POINT OF VIEW ON THE QUESTIONS ANSWERED BELOW: 1. What does

Question

PLEASE GIVE YOUR OWN POINT OF VIEW ON THE QUESTIONS ANSWERED BELOW:

1. What does the term ‘shadow economy’ mean?

Shadow economy is best described as when regulations and rules are not followed. The best example of shadow economy is getting work done by involving cash. A shadow economy includes having illegal employment and not paying tax, but still being able to produce goods and services, which can result in lowering the rates of economy. Shadow economy can play very powerful role in changing economy’s growth. Having appropriate policies and better regulations can change the system into fair tax system.

2. How does the shadow economy affect GDP in different countries? GDP numbers are various in different countries. Based on the particular graph in the article, in USA and Switzerland, the shadow economy has a very low share of the entire economy. However, in Greece and Poland, the shadow economy’s share is really high. Countries where the shadow economy has a lower share have less waste and a more powerful economy. Countries where the shadow economy has a higher share often have weaker overall economy.

3. What are the main factors influencing the shadow economy? The main factors of shadow economy are weak laws and regulations, not paying tax, growing unemployment numbers, social security contributions, and rate of increasing numbers of early retirement.

4. Why is the shadow economy a challenge for the governments? Shadow economy is very challenging for government because becomes very hard for the government to identify the problem that causing the higher share of the GDP for the shadow economy. The presence of a shadow economy weakens the overall economy because it takes away taxes and income from the real economy.

5. Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace. I have learned the importance of the rules and regulations. It is good to know the economic consequences when the regulations are rules are not followed. I think all citizens should avoid types of activities that contribute to a shadow economy such as; getting work done by cash, not paying taxes and hiring illegal employees. The world would be at much better place if everyone follows these carefully at work or in day to day life.

Explanation / Answer

Answer 1:

The answer is correct. It is also known as black economy or grey economy. Rest of the points mentioned in the answer are correct.

Answer 2:

It can also be added that shadow economy leads to under estimation of GDP in the economy because transactions occurring in shadow economy are not getting recorded in the books of account which leads to under estimation of GDP mainly in developing countries.

Answer 3:

Also one of the major factors that impact shdow wconomy is high rate of taxes in the economy. When taxes are high, then people find ways to hide their income from taxation.

Answer 4:

The answer is correct.It is difficult to identify the problem and locate the areas where black economy is occurring.

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