Author Question: If government spending is 900 billion while government revenue is 600 billion, the government is ... (Read 99 times)

nautica902 · **on:** Jun 30, 2018

If government spending is 900 billion while government revenue is 600 billion, the government is said to have a

A) 600 billion budget deficit. B) 1,500 billion budget deficit.
C) 300 billion budget deficit. D) 300 billion budget surplus.

Question 2

Barylia is an economy with extractive institutions such as the absence of private property rights and high tax rates. Is it guaranteed that Barylia will always experience no growth or negative growth? Why or why not?

What will be an ideal response?

poopface · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

No, the objective of an extractive institute is not to stop growth or decelerate growth. The main objective of extractive institutions is to maximize the wealth of the elites handling the institutions. Thus, more the nation grows, more the elites can extract from the people. Hence, even under extractive institutions growth takes place. It is just that growth under extractive institutions will not be sustained.
Sustained growth depends a lot on innovation. Innovation is unlikely under an extractive setup as individuals have no personal incentive to innovate. Secondly, innovation can lead to political creative destruction. This implies that innovation reduces the chances of the elites staying in power. Also, since people in extractive frameworks face oppression, political instability is expected and growth will not be sustained.