How might increasing the level of government transfers reduce the size of the economic pie? Check all that apply. (Can you give an explanation if you answer this? I want to be able to actually understand it, not just put in the right answer)
Greater transfer activity diverts productive resources into rent-seeking activity.
Higher taxes may be necessary to finance increased transfer payments, leading to a reduction in hours worked because of a decrease in the reward for productive activity.
People may devote less time and energy to avoidance of taxes needed to finance increased transfer payments.