Question

Think about how governments allocate their budgets. What might make government officials decide to spend additional money on Social Security instead of the military? What would make government officials decide that the marginal benefit of Social Security spending is greater than the marginal cost of military spending?

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Answer 1

Government officials may determine that income and health care for elderly citizens are their highest priority. Defense may not be an immediate priority for them. So the marginal benefit of Social Security spending is greater than the marginal cost of military spending.

Answer 2

In response to the financial crisis and its impact on the economy, the federal government has increased government spending markedly in order to stimulate economic growth. With billions of taxpayer dollars appropriated toward this effort, policy makers should examine whether federal spending actually promotes economic growth. Although the studies are not all consistent, historical evidence suggests an undesirable, long-run effect from government spending: it crowds out private-sector spending and uses money in unproductive ways.