Black economy is most likely to be prevalent when: A. large amounts o

QUESTION

Black economy is most likely to be prevalent when:

A. large amounts of economic activity are in the form of legally recorded cash transactions.

B. people engage in barter agreements to avoid paying taxes.

C. a country’s GNI per capita exceeds $30,000.

D. the expenses of the government are less than its income.

E. a country is in trade surplus with another foreign country.

ANSWER

B
Large amounts of economic activity may be in the form of unrecorded cash transactions, or barter agreements. People engage in such transactions to avoid paying taxes, and although the share of total economic activity accounted for by such transactions may be small in developed economies such as the United States, in some countries (India being an example), they are reportedly very significant. Known as the black economy, estimates suggest that in India it may be around 50 percent of GDP.