The government's present value budget constraint states that
A)the government may run deficits each and every year, as long as the deficits are sufficiently small.
B)the present value of government spending must be equal to the present value of consumers' disposable incomes.
C)governments can increase spending as long as deficits are financed by issuing debt.
D)the present value of government spending must be equal to the present value of taxes.
E)taxes must equal government spending in each period.

Question

Quizplus · Accepted Answer

The present value budget constraint for the government states that the present value of government spending must be equal to the present value of taxes. This means that the government cannot continuously run deficits or increase spending without either raising taxes or reducing spending in the future. In other words, the government must balance its budget over the long run, rather than simply accumulating debt. Option D is the only choice that accurately reflects this constraint.

The Government's Present Value Budget Constraint States That