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,

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.

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