Question

What effect could the Broken Window Fallacy have on the creation of public policy?

A) It may lead to policies promoting destruction to stimulate economic activity.
B) It could result in policies discouraging spending to avoid the broken window scenario.
C) It may have no impact on public policy creation.
D) It could lead to policies encouraging spending to stimulate economic growth.

Answer 1

The Broken Window Fallacy can lead to policies encouraging spending to stimulate economic growth.

Step-by-step explanation:

The Broken Window Fallacy can have an effect on the creation of public policy by leading to policies encouraging spending to stimulate economic growth (Option D). This fallacy suggests that stimulating economic activity through destruction or unnecessary spending is beneficial for the economy. However, this approach overlooks the opportunity cost of diverting resources from other productive uses and the potential negative consequences of such policies.