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Free response question

Macroeconomics · Hard · 30 marks

IEO past paper: 2022 International Economics Olympiad, open questions

Question 4. "Shadow Economy" One of the problems with the GDP indicator is its inability to account for the production of goods and services in the underground (shadow) economy. By this we mean not only illegal production of forbidden goods and services but also housework, helping friends, etc.: everything that is not observable for official statistics, but would have to be included in GDP if it were observable.

(a)Clearly state two different approaches for estimating the size of the shadow economy of a country. Explain why your approaches may work to achieve this goal. Also explain why they might not work (the disadvantages).[30]

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