Suppose a government has access to the following sources of funding currently as

Question

Suppose a government has access to the following sources of funding currently as well as over the long run:

Source

Dollar Amount

Taxes

$1,000

User charges

$100

Borrowed funds

$250

1. In the current time period, this government's spending on goods and services and transfer payments is limited to

A. $1,250.

B. $1,100.

C. $1,000.

D. $1,350.

2. Over the long run, this government's fundamental revenues are equal to

A. $1,250.

B. $1,000.

C. $1,350.

D. $1,100.

Source

Dollar Amount

Taxes

$1,000

User charges

$100

Borrowed funds

$250

Explanation / Answer

1 All three are its source of funds so that we spending and transfer payments are limited to 1000+100+250=1350

2 borrowed funds can't be part of fundamental revenues. They are to be paid back. Thus fundamental revenue =1000+100=1100

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