The term “underground economy” encompasses economic activity that people do not report because it is illegal or because they hope to avoid paying taxes. Though the size of the underground economy is...

The term “underground economy” encompasses economic activity that people do not report because it is illegal or because they hope to avoid paying taxes.

Though the size of the underground economy is unknown, it may be a sizable fraction of the nation’s

GDP. How does the underground economy affect the

accuracy of official measures of GDP, unemployment,

and productivity, and complicate the tasks of policymakers?