Part of gross domestic product consists of production in the so-called FIRE sector (finance, insurance, and real
Question:
Part of gross domestic product consists of production in the so-called FIRE sector (finance, insurance, and real estate). Value added is notoriously difficult to measure in the FIRE sector, as it is hard to determine exactly what the inputs and outputs are. For example, banks are included in the FIRE sector, and we know that they contribute to our well-being by making borrowing and lending more efficient and by providing transactions services. However, as most of the inputs and outputs associated with a bank are not actual physical quantities, it is much more difficult to measure value added in banking than in the production of apples, for example. During the decade 2000–2010, there were several high-profile financial scandals—incidents of individuals and institutions in the financial sector implicated in white-collar crime. Discuss the implications that such criminal financial activity has for the measurement of GDP.
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