QUESTION 1

Empirical evidence shows that budget deficits in democratic developing countries tend to rise during election years. Which one of the following factors may help explain this phenomenon?

a.Elections often take place during recessions, which according to optimal fiscal policy must be countered by expansionary fiscal policy.

b.Incumbent politicians adopt expansionary fiscal policy in election years to ensure that voters see their incomes rising and view the incumbent party's policies favorably at election time.

c.Incumbent politicians use increased fiscal expenditure to offer financial benefits to their supporters and encourage them to help reelect the incumbent party.

d.Both (b) and (c).

e.All of the above.