Question

An article in the Wall Street Journal noted that many economists believe that GDP data for India are unreliable because "most enterprises are tiny and unregistered, and most workers are employed off the books. The government's infrequent surveys represent only a best guess of the value being added in back-alley workshops, outdoor markets and other cash-based corners of the economy."
1. What does the article mean by working "off the books"? Why might it be difficult for the government to measure the production of small, cash-based firms?

2. Why would the problems listed make it difficult for the Indian government to accurately measure GDP?

3. What problems can be caused for a government or for businesses in a country if the government cannot accurately measure GDP?

Answer 1

Explanation:

1. Working "off of books involves working within the underground economy, in which government economic activities are hidden to avoid taxation or laws, or in which products and services are sold illegally.

2. As the government is shielded from activities within the informal economy, they would not be included in GDP figures.

3. If GDP is calculated accurately, the government will find it difficult to set strategies to accomplish macroeconomic objectives. Normally, the government does not receive tax revenue from illegal sales. This could result the government to raise taxes on non-underground company individuals and companies, thus prohibiting their jobs, saving and investment.