The opportunity cost of government purchases is greater when financed by borrowing than when financed by taxes.

Question

Quizplus · Accepted Answer

The opportunity cost of government purchases is determined by what is foregone to allocate resources to those purchases, not by the method of financing (borrowing vs. taxes). Both methods redirect resources from private use to government use, but the method of financing does not inherently change the opportunity cost of the government purchases themselves.

The Opportunity Cost of Government Purchases Is Greater When Financed