Question

The law that explains the relationship between income growth and the size of government expenditure is appropriately linked to:

• A. Wagner’s law
• B. Okun’s law
• C. Walras law
• D. Ricardian equivalence

Hint:

Wagner's law emphasizes that as economies grow, government expenditures increase in relation to national income.

Answer 1

The Correct Option is A

Step 1: Understanding Wagner's law.
Wagner's law states that as an economy grows, the government’s expenditure also tends to increase. This law connects income growth with the expansion of government spending.
Step 2: Explanation of the options.
(A) Wagner's law explains the positive relationship between income growth and government expenditure. (B) Okun’s law relates unemployment to output, not income growth and government expenditure. (C) Walras' law deals with general equilibrium in markets, not government expenditure and income growth. (D) Ricardian equivalence suggests that government borrowing does not affect overall economic activity, but it is not directly linked to income growth and expenditure size.
Step 3: Conclusion.
The correct answer is (A) because Wagner’s law explains the relationship between income growth and government expenditure.