1. Government expenditures in the United StatesThe first table that follows shows government expenditures as a percentage of GDP for selected years. For the same years, the first table also showsdifferent categories of federal expenditures as percentages of total federal government expenditures. The second table shows government tax revenueas a percentage of GDP for the selected years. The second table also shows different categories of federal tax receipts as percentages of total federaltax receipts. (Source: "U.S. Government Printing Office.")Government Expenditures (GDP %)State andLocal7%10%14%Year195019702011Federal16%19%24%Government Tax Receipts (GDP %)State andYear195019702011Federal14%19%15%Local7%10%*Including transportation, agriculture, veterans' benefits, international affairs, housing, and so on.14%Income Security13%22%50%Expenditures as a Share of the Federal Government BudgetEducation Net Interest onand HealthFederal DebtIndividualIncome Taxes40%47%47%National Defense32%40%20%2%11%Social Insurance13%Federal Government ReceiptsTaxes11%23%36%Corporate11%9%6%Income Taxes Excise Taxes26%17%8%19%8%3%Others*42%Others4%5%18%11%6% Which of the following statements are true? Check all that apply.00Between 1950 and 2011, total government expenditures (federal, state, and local combined) grew from about one-fourth of GDP to morethan one-third of GDP.As of 2011, the federal government financed most of its outlays with individual income taxes and social insurance taxes.Federal taxes as a percentage of GDP were lower in 2011 than they were in 1970.Between 1970 and 2011, national defense expenditures as a percentage of the federal budget grew, while income security expendituresas a percentage of the federal budget declined.

Fiscal Policy refers to the use of government spending and taxation to influence the economy. The…

The first table that follows shows government expenditures as a percentage of GDP for selected years. For the same years, the first table also shows different categories of federal expenditures as percentages of total federal government expenditures. The second table shows government tax revenue as a percentage of GDP for the selected years. The second table also shows different categories of federal tax receipts as percentages of total federal tax receipts. (Source: "U.S. Government Printing Office.")

The first table that follows shows government expenditures as a percentage of GDP for selected years. For the same years, the first table also shows different categories of federal expenditures as percentages of total federal government expenditures. The second table shows government tax revenue as a percentage of GDP for the selected years. The second table also shows different categories of federal tax receipts as percentages of total federal tax receipts. (Source: "U.S. Government Printing Office.")

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 42CTQ: Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go...

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Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
2. Calculating the debt to GDP ratio Suppose the following statistics characterize the financial health of the hypothetical economy Spendia at the end of 2017: • Gross domestic product (GDP) is equal to $100 billion. • The national debt is equal to $130 billion. • The government has a budget deficit of $7 billion. • The debt ceiling in Spendia is set at $148 billion. The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Complete the first row of the following table by computing the ratio of national debt to GDP. Suppose that nominal GDP remains at $100 billion in 2018, and again the government runs a budget deficit of $7 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt. Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table. Year 2017 2018 GDP National Debt (Billions of dollars) (Billions of…
Illustrate each of the following situations with a graph showing IS curve: a. An increase in government spending b. An increase in taxes
2. Calculating the debt to GDP ratio Suppose the following statistics characterize the financial health of the hypothetical economy Debtenburg at the end of 2017: • Gross domestic product (GDP) is equal to $150 billion. • The national debt is equal to $180 billion. • The government has a budget deficit of $9 billion. • The debt ceiling in Debtenburg is set at $198 billion. The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Complete the first row of the following table by computing the ratio of national debt to GDP. Suppose that nominal GDP remains at $150 billion in 2018, and again the government runs a budget deficit of $9 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt. Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table. Year 2017 2018 GDP National Del (Billions of dollars) (Billions of…
The Federal Budget Ask FRED ALFRED I The accompanying graph contains data on U.S. federal government expenditures as a percentage of total GDP. 27.5 25.0 22.5 20.0 17.5 15.0 1950 1960 1970 1980 1990 2000 2010 Source: U.S. Bureau of Economic Analysis a. Approximately how much of GDP was spent by the Federal Government in 2016?
9. Make a graph showing the spending and tax revenue of your state government for as many years as you can find (use the government of your home country if you are not from the United States). What trends do you notice? What spending categories make up the largest share of the state budget? What are the largest sources of revenue? e
2. Calculating the debt to GDP ratio Suppose the following statistics characterize the financial health of the hypothetical economy Splurgium at the end of 2017: Gross domestic product (GDP) is equal to $160 billion. • The national debt is equal to $240 billion. • The government has a budget deficit of $8 billion. The debt ceiling in Splurgium is set at $264 billion. The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Complete the first row of the following table by computing the ratio of national debt to GDP. Suppose that nominal GDP remains at $160 billion in 2018, and again the government runs a budget deficit of $8 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt. Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table. GDP National Debt (Billions of dollars) (Billions of dollars) Ratio of…
Price level (GDP deflator, 2000 - 100) LRAS SRAS Real GDP (trillions of 2000 dollars) In the figure above, if the economy is at point A, the appropriate fiscal policy by the US Congress and the President would be to raise income taxes. O raise interest rates lower interest rates O lower income taxes
7. The following is information from the national income accounts for Ensperanza Island, a country on the Zambezi Ocean. Figure 1.1 Ensperanza Island GDP К 6000 Gross Investment K800 Net Investment К200 Consumption К4000 Government Purchases of goods and services K1100 Government Budget surplus K30 Use the information in figure 1.1 to answer the following question. Calculate: (i) NDP (ii) Net Exports (ii) Government taxes minus transfers? (iv) Disposable personal income?
Complete the following table and answer one question. a. Assuming an 8 percent sales tax is levied on all consumption, complete the following table: Instructions: Round your responses for "Sales Tax" to the nearest whole number. Round your responses for "Percentage of Income Paid in Taxes" to one decimal place. Income Consumption $10,000 20,000 40,000 80,000 Sales Tax $11,000 $ 20,000 $ 1,400 36,000 $ 2,520 60,000 $ 4,200 x 770x Percentage of Income Paid in Taxes 7.7% 7.0% 6.3% X 5.3%
5. Allocation of government expenditures Federal and local governments tax and spend. The following pie charts show the allocation of federal and local government expenditures in 2016. Interest 11% Federal All other 12% Health 30% O True O False Pensions and Income Security 33% National Defense 14% Highways 6.0% State and Local All other 31% Education 33% Health and Public Welfare (includes health and welfare and social services, not disability) 30% (Source: Bureau of Economic Analysis, "Government Current Expenditures by Function," National Income and Product Accounts Tables, www.bea.gov.) True or False: You can validly conclude from these pie charts that local governments do not spend enough on highways.
6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes do not vary with GDP The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a fixed tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes. Hint: The new consumption schedule must pass through one point on the left and one point on the right. Hint: The new consumption schedule must pass through one point on the left and one point on the right. 50 Consumption with Tax Increase through a Fixed Tax Consumption with Tax Increase through a Variable Tax + 20 40 60 80 100 REAL GDP (Billions of dollars) The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure. Use the new…