Question 13 / 49:  How do we know that government spending diverts resources from the private sector? Does it matter how the government obtained its funds?
Answer: 

We know government spending diverts resources, because we can see that actual resources are consumed (or at least devoted

to a specific end) when the government spends money. Those resources can't physically be used for private projects (at least

in most cases). At this level of analysis, it doesn't matter how the government obtained its funds; its spending necessarily

commits resources to particular projects and thereby makes them unavailable for entrepreneurs in the private sector.

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Interventionism: The Mixed Economy

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Attribution:  Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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