Econ-Chapter 12

Question 1

When the state spends more than it receives in taxes in one year, it runs a

Answer 1

deficit equal to the amount of spending minus the amount of taxes

Question 2

federal debt

Answer 2

the total amount that state owes, and the total amount of government bonds outstanding

Question 3

net public debt

Answer 3

the portion of the debt that the US government owes to others, not itself-is the relevant amount that the state owes

Question 4

much of the inconsistency comes from politicians wanting to

Answer 4

change the language to obscure their actions

Question 5

two main common misconceptions

Answer 5

• the announced cut was a cat to a plan, not a cut compared to present
• the announced cut is multiplied by 10 years, whereas the current deficit number is not

Question 6

the congressional budget office

Answer 6

use static scoring- which assumes that individuals will not change their behavior if taxation or spending changes, and dynamic scoring-looked at the effects of past changes on behavior to forecast the effects of new legislation

Question 7

the size of debt, compared to the economy was stable during the early 2000s, but then increased during the crisis of 2008 due to

Answer 7

• falling GDP

- the $152 billion stimulus of 2008

Question 8

since 2008 the ratio increased quickly as spending arose by large amounts due to

Answer 8

• the 778B stimulus package of 2009
• building part of the stimulus into the baseline
• two 8% increases in ordinary spending in 2009
• TARP funds that were send and not repaid
• increases in spending

Question 9

We spend

Answer 9

• 60% on transfers such as social security, medicare,medical, unemployment insurance, and welfare programs
• 20% on national defense
• 5% on interest on the debt
• 15% on everything else, such as roads, education..

Question 10

the us government owns some of its own

Answer 10

debt

Question 11

for purposes of paying benefits, there are

Answer 11

$0 actual dollars in the trust fund

Question 12

social security was never going to work out in the long run, but was put off by

Answer 12

• the baby boo, after WWII

- The massive entry of women into the workforce

Question 13

social security payments have increased by

Answer 13

50%

Question 14

medicare and medicaid have experienced socialization of medicine which has caused costs to rise resulting in

Answer 14

gov. saying that if medicine isn’t socialized then people can’t afford it,

Question 15

actuaries are making assumptions of governmental accounting such as

Answer 15

• benefits can be paid out of trust funds made up of government bonds(not money)
• politicans make cuts to future benefits early in every year, which would result in less future spending

Question 16

after the income tax amendment was passed,

Answer 16

taxes fell down to 24%

Question 17

the substantive tax cuts of kennedy, reagan, and bush..

Answer 17

did not lower revenues as a percentage of GDP

Question 18

Tax revenues fell with the “dot-com” meltdown of the late 1990s and in the subsequent recession, but

Answer 18

rose again after the bush tax cuts of 2003

Question 19

the fact that no matter how high rates go, tax revenues stay in the 17-18% range is called

Answer 19

Hauser’s Law

Question 20

Haulers law implies

Answer 20

that we cannot balance out spending problems with tax increases, above a certain point

Question 21

proportional tax

Answer 21

is one in which the tax rate is the same at all income levels

Question 22

progressive tax

Answer 22

is on in which the tax rate rises as income rises

Question 23

regressive tax

Answer 23

is one in which the tax rate rises as income falls

Question 24

many claim that though income taxes may be progressive, when one includes payroll taxes, such as social security, unemployment insurance, medicare, and the like, that the total federal tac system is

Answer 24

regressive

Question 25

it is not true that all federal taxes, taken together are

Answer 25

regressive

Question 26

if someone wished to improve the economy then they should implement reforms on

Answer 26

• spending
• taxes
• deficits

Question 27

defecits have costs

Answer 27

• domestically financed government spending = resources are immediately withdrawn from the economy
• foreign financed government spending = resources are withdrawn from the foreign economy immediately, and crowding out affects economy later
• governement spending financed by money creation will create inflation and destabilize the economy as prices cease to reflect value

Question 28

friedman suggest that

Answer 28

it is inefficient to spend another income on a third person, this will destroy value

Question 29

plan 2 is the way to go

Answer 29

it would increase productivity and help pay off the long run deficit