Unformatted text preview: calculation of GDP, that something has to be capable of being counted. Illegal trades are not
capable of being counted, for obvious reasons. For example, when someone makes an
illegal purchase, no record is made of the
transaction. The criminals involved in the
transaction do everything in their power to
prevent anyone from knowing about the
As you know, it is illegal in
the United States to buy and sell drugs such
as cocaine, heroin, and methamphetamine.
Suppose a person pays $400 to buy some of
an illegal drug. This $400 is not counted in
GDP. If, however, the person spends $40 to
buy a book, this $40 is counted in GDP. It is
not illegal to buy a book.
EXAMPLE: 290 Chapter 11 Measuring Economic Performance QUESTION: Obviously, illegal transac- tions occur in the United States every
day (such as dollars exchanged for illegal
drugs), and other transactions that occur
are “under the table” (such as a person
being paid for his services in cash instead
of with a check). Do economists know
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This document was uploaded on 01/16/2014.
- Winter '14