Question

what macroeconmic concepts are able to be applied to the broken window fallacy?

Answer 1

The broken window fallacy states that an economic event can have negative and unforeseen ripple effects. When the money is spent on repairing the damage, it would be a mistake to assume that it represents a rise in economic output and economic welfare. When the money is spent on repairing a broken window, the opportunity cost represents that people cannot spend money on more productive products. It doesn’t raise the overall output thus would shifts from productive output of an economy to maintaining the existing situation. The “broken window fallacy” is illustrated when the program by a government is justified on the number of employment it will create and not on its merits. The breaking and fixing the broken window would eventually assist the economy with an increase in the aggregate level of spending. Furthermore, when only one thing is produced to stimulate the economy the other things will not be produced thus consequently the economy would not be stimulated at all. War causes wealth destruction on a large scale and would not stimulate the economy.