Government purchases of goods and services are:

A. exhaustive because they directly absorb or employ resources and account for production.
B. neither exhaustive nor nonexhaustive because of the tax revenues that finance these purchases.
C. nonexhaustive because they do not directly absorb resources and account for production.
D. both exhaustive and nonexhaustive because in some cases they do directly absorb resources or account for production and in other cases they do not.

The correct answer is option (c) Non exhaustive because they do not directly absorb resources and account for production.

Explanation:

Solution

Exhaustive spending involves the government directly buying goods and services like paying the police and building roads, buying medical equipment, p. In this example, the public sector determines the use of resources.

The other type of  category is transfer payments. transfers of money to people (such as, pensioners and the unemployed) and to firms (in the way of grants and subsidies).

This is referred to as -exhaustive expenditure. In this scenario, the government does not decide on the allocation of resources.