Chapter 3R, Problem 2CTQ

To determine

The question requires us to determine the impact of businesses that are legal in some countries while illegal in some, on the international GDP.

Explanation of Solution

GDP is the measurement of final goods and services produced in an economy in a financial year.

GDP tells us about the growth in national income, production level, and per capita income (with the help of population growth). It indicates the economic growth in a nation in quantitative terms, but it doesn’t say anything about the quality or health of an economy because GDP doesn’t include the economic state of education, health, banking, insurance, technologies, research & developments, and so on.

The value of GDP doesn’t include the work done by housewives, the value of intermediate goods, and underground economic activities. These underground activities include illegal activities like drug production and sale, prostitution, gambling, and human trafficking. If these activities are legal then they will be included in the calculation of GDP which causes the national GDP to rise, but if these activities are illegal in the domestic nation then they will not include in the calculation of GDP.

If illegal activities become legal, the value of the international GDP rises while when such activities remain illegal then the value of the international GDP falls.

Thus, any change in domestic GDP will change international trade and thus international GDP.