Limitations of GDP – the informal economy

Been covering this topic with my A2 Economics class. Below is a recent video from Venezuela outlining the size of the informal sector. It is estimated that 50% of the workforce make some sort of living from selling items on the street usually for US$. This explains one of the limitations of GDP as a measurement of a country’s standard of living.

The informal economy is generally associated with low productivity, poverty, high unemployment, and slower economic growth. It is also more prevalent in low-income countries because as countries develop, the easier it is for workers to transition to the formal sector. At the same time, it provides employment and income to people who would otherwise not find employment, or it supplements their income from employment in the formal, regulated sector. IMF The Global Informal Economy: Large but On The Decline. 30-10-19

Sign up to elearneconomics for multiple choice test questions (many with coloured diagrams and models) and the reasoned answers on GDP and its limitations. Immediate feedback and tracked results allow students to identify areas of strength and weakness vital for student-centred learning and understanding.

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