The "Broken Window Fallacy" argues that destruction can actually help the economy.

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Question: The 'Broken Window Fallacy' argues that destruction can actually help the economy.

Option 1: True. At first glance, some might think that breaking something leads to repair work and economic activity. However, the core idea of the Broken Window Fallacy is that this view is mistaken because it overlooks the resources that must be diverted from other uses to fund the repair, and the lost alternative benefits those resources could have produced elsewhere. In other words, the apparent boost from destruction is paid for by the foregone production of other goods and services.

Option 2: False. The fallacy contends that destruction does not create net economic welfare; it merely reallocates spending toward rebuilding. While reconstruction activity may generate some output, it comes at the cost of reduced consumption or investment elsewhere, and there is no new wealth created overall. The economy experiences a transfer of activity from one set of uses to another, not a true net gain in value.

In short, the correct understanding is that destruction does not inherently improve the economy; any short-term construction jobs or repairs do not outweigh the opportunity costs of losing existing goods and services, making the idea underlying the statement false.

The "Broken Window Fallacy" argues that destruction can actually help the economy.

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