Question

The **Wiseman-Peacock Hypothesis** explains the growth of public expenditure as a result of a 'displacement effect.' What does this effect refer to?

• A. Public expenditure decreasing due to a reduction in social unrest.
• B. A temporary increase in public expenditure during social disturbances, followed by a return to the original level.
• C. Public expenditure remaining unchanged regardless of social disturbances.
• D. A rise in public expenditure and a new, higher tax tolerance level following a social disturbance.

Answer 1

Answer:

D. A rise in public expenditure and a new, higher tax tolerance level following a social disturbance.

• The hypothesis suggests that major social upheavals like wars or recessions raise the public's tolerance for higher taxes, allowing for a permanent increase in public spending that persists even after the crisis is over.