From a Public Choice Viewpoint, the Persistent Budget Deficits of Recent

question 47

Multiple Choice

From a public choice viewpoint, the persistent budget deficits of recent decades are

• A) surprising, because politicians have a strong incentive to balance the government's budget.
• B) an expected result, because the political incentive structure makes it attractive for politicians to levy taxes rather than spend on current programs.
• C) surprising, because politicians have a strong incentive to run budget surpluses and thereby indicate that their actions have generated a profit.
• D) an expected result, because the political incentive structure makes it attractive for politicians to spend on current programs rather than levy taxes.

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Definitions:

Capital Stock

The total amount of physical, human, and intellectual capital that a country possesses at any given time.

Beneficial Supply Shock

An unexpected event that increases the production capacity and decreases the prices of goods and services.

Potential Output

The maximum sustainable level of real GDP over the long term that does not lead to an increase in inflation.

Price Level

This term refers to the average of current prices across the entire spectrum of goods and services produced in the economy.