Black Money and How It Affects the Economy

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  • Topic: Tax, Tax haven, Underground economy
  • Pages : 19 (6954 words )
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  • Published : December 11, 2012
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Black Money And How it affects the Economy

Sonali Hatwal
Anirudh Sarda
Economics II

Contents

ABSTRACT3
INTRODUCTION:4
BLACK MONEY5
RELATION BETWEEN BLACK MONEY AND ECONOMY5
EFFECTS OF BLACK MONEY6
TAX HAVEN7
LEAST CORRUPT COUNTRIES12
BRICS12
INDIA13
GOVERNMENT ACTION17
MEASURES TAKEN BY GOVERNMENT TO TACKLE BLACK MONEY18
MONEY LAUNDERING19
REFERENCES21

ABSTRACT

This paper looks into the age old debate of whether GDP is a ‘good’ indicator to judge growth and development of a country. After looking briefly through its merits and demerits, we will concentrate on one of the demerits regarding GDP overlooking the workings of the ‘parallel’ or ‘underground’ economy. It is very difficult to get an estimate of it as none of it appears officially on any documents or records. Relating it to black money, we try to find a link between corruption and black money and how this link could affect the economy is the objective of this project. We have also taken India, as a case study to see how the link works along with a few steps that should be taken by the Government of India to curb this rising problem of black money and corruption. This represents as part of the conclusion.

INTRODUCTION
GDP- a good indicator of growth and development
The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports is the gross domestic product of that country. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year. Measuring GDP can be done in one of the two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total. The income approach is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports. A significant change in GDP, whether up or down, has an impact. A bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession. It is not subjective so comparison of countries productivity and economic health is done without bias. It is easier to measure as money makes things easier to measure. One main problem in estimating GDP growth over time is that the purchasing power of money varies in different proportion for different goods.  Can a lone Gross Domestic Product measure reflect progress and public welfare? Can GDP, a shorthand tool for the well-being of a country be an accurate assessment of the standard of living of its citizens? These are some criticisms of GDP as a true measure of the economic health and wellness of a nation: GDP doesn’t account for household domestic and volunteer work. Child-rearing, housekeeping and any unpaid volunteer work is deemed valueless under the GDP regime. Doesn’t take into account the black market arena where any money spent is not registered. Bartered services are also not accounted for in the GDP equation. GDP doesn’t measure quality of life or quantify human happiness. Sustainability of growth is not accounted for by GDP. An oil rich nation can have high GDP without industrializing, unable to sustain high growth statistics once the natural oil and gas resources are depleted. The measure doesn’t account for disparity in incomes between the rich and poor. GDP doesn’t measure inputs used to produce the output. Herein, an increase in GDP may not reflect the true underpinnings of the output. For it is, if...
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