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Example 17: In “An International Comparison of Underground Economic Activity”, Friedrich<br />

Schneider and Christopher Bajada estimated that the underground economy for the generally<br />

developed countries of the Organisation for Economic Co-operation and Development averaged<br />

16.3% of GDP in 2002/2003. For the generally less developed countries of Central America and<br />

South America, the underground economy averaged 43.4% of GDP. For the generally less<br />

developed countries of Africa, the underground economy averaged 43.2% of GDP.<br />

3. GDP does not include differences in leisure time. Leisure time affects a nation’s standard<br />

of living, but is not included in GDP. Leisure time is typically greater in less developed<br />

countries than in developed countries. Comparisons of GDP between developed countries and<br />

less developed countries will thus tend to overstate the difference in standard of living.<br />

4. GDP does not adjust for economic bads. An economic bad could actually increase GDP.<br />

The damage done by an industrial accident or a flood would not be deducted from GDP, but<br />

the market value of the production necessary to repair and replace damaged property would<br />

add to GDP. Economic bads detract from a nation’s standard of living.<br />

Appendix: The Three Macroeconomic Goals and the U.S. Economy<br />

The three macroeconomic goals are price level stability, full employment, and economic growth.<br />

A nation’s success in achieving these goals is measured by its inflation rate, unemployment rate,<br />

and Real GDP growth rate. The table below indicates these three rates for the U.S. economy for<br />

selected years.<br />

Year Inflation Rate Unemployment Rate Real GDP Growth Rate<br />

1929 0% 3.2% 6.5%<br />

1930 -2.3 8.7 -8.6<br />

1931 -9.0 15.9 -6.4<br />

1932 -9.9 23.6 -13.0<br />

1933 -5.1 24.9 -1.4<br />

1943 6.1 1.9 16.5<br />

1944 1.7 1.2 8.1<br />

1945 2.3 1.9 -1.1<br />

1946 8.3 3.9 -11.0<br />

1947 14.4 3.9 -0.9<br />

1966 1.6 4.5 6.6<br />

1967 2.9 3.8 2.5<br />

1973 6.2 4.9 5.8<br />

1974 11.0 5.6 -0.6<br />

1975 9.1 8.5 -0.4<br />

1980 13.5 7.1 -0.2<br />

1981 10.3 7.6 2.5<br />

1982 6.2 9.7 -2.0<br />

1983 3.2 9.6 4.3<br />

1984 4.3 7.5 7.3<br />

1990 5.6 5.4 1.9<br />

1991 6.8 4.2 -0.1<br />

1992 7.5 3.0 3.6<br />

2007 2.8 4.6 1.8<br />

2008 3.9 5.8 -0.3<br />

2009 -.4 9.3 -2.8<br />

2010 1.6 9.6 2.5<br />

2011 3.1 8.9 1.6<br />

2012 2.1 8.1 2.3<br />

2013 1.5 7.4 2.2<br />

FOR REVIEW ONLY - NOT FOR DISTRIBUTION<br />

5 - 7 Measuring Total Output: GDP

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