How does the underground economy affect the accuracy of official measures of GDP

Question

How does the underground economy affect the accuracy of official measures of GDP, unemployment, and productivity, and complicate the tasks of policymakers?

The underground economy

A. makes it more difficult for policy makers to estimate how close the economy is to its natural rate of unemployment.

B. Does not affect the accuracy of official measures of GDP, unemployment, and productivity.

C. Leads to an overestimated threat of inflation and recession.

D. Leads to an overestimated measurment of GDP, unemployent, and productivity.

I think the answer is either C or A. But I am not sure. It could also be C.

Explanation / Answer

The correct answer is option A = makes it more difficult for policy makers to estimate how close the economy is to its natural rate of unemployment.

A black market or underground economy is a market in which goods or services are traded illegally. The key distinction of a black market trade is that the transaction itself is illegal. As goods and services are traded illegally and also a lot of people are employed in an underground economy it becomes hard for policy makers to estimate the current situation of the economy.

I hope my solution solves your query.

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