If the federal government borrows to build a new dam in North Dakota with a rate of return above the borrowing rate,and later raises federal income taxes to pay the interest,future welfare in the United States is

Question

Quizplus · Accepted Answer

If the rate of return on the new dam project is higher than the borrowing rate, it means that the project will generate positive net income in the future. This could be through revenue from selling electricity produced by the dam or through other economic benefits. Therefore, the investment could potentially increase overall welfare in the long run. However, if the government raises federal income taxes to pay the interest on the borrowing, the burden of paying for the project is distributed among taxpayers. This redistribution may not necessarily lower overall welfare, but it could result in some individuals or groups experiencing a net loss in welfare due to the tax increase. Therefore, the best answer is B, as the redistribution of burden through tax increases could potentially result in redistribution of welfare depending on how the taxes are implemented.

If the Federal Government Borrows to Build a New Dam