Macro economics

A quarter century ago Canada, Mexico and the United States formed a customs union, known as NAFTA. This is not a common market, and indeed there are an estimated 7 to 10 million illegal immigrants living in the United States, many of whom are Mexicans. Furthermore, "illegal drugs are the most successful Mexican multinational enterprise, employing some 450,000 Mexicans and generating about $20 billion in sales, second only behind the country's oil industry and automotive industry exports". (Source: David Luhnow, "Saving Mexico", WSJ, December 26, 2009.)

A) Distinguish between a customs union and a common market.

B) Explain why there has been a growth in the underground economy of the United States.

C) Evaluate the following non-exclusive means of diminishing the underground economy:

1) Transform NAFTA into a common market.

2) Legalize drugs.

3) Increase both the surveillance by the IRS of the 30 million businesses in the United States and reform the tax system by introducing, for example, a value added tax.

4) Increase the effectiveness of surveillance of social security recipients from gaining income from the underground economy.