ECON 2120 Quiz: Public Finance

"Transfer payments" may be thought of as

taxes in reverse.

Answer the next question using the following budget information for a hypothetical economy. All data are in billions of dollars. Also assume that all budget surpluses are used to pay down the public debt. Government Spending Tax Revenues GDP Year 1 $ 800 $825 $4,000 Year 2 850 850 4,200 Year 3 900 875 4,350 Year 4 950 900 4,500 Year 5 1,000 925 4,600 Assume that year 1 is the first year for this economy and year 5 is the current year. What is the public debt in this economy at year 5?

125

The following data represent a personal income tax schedule. Answer the next question on the basis of this information. Taxable Income Total Tax $ 15,000 $ 1,500 30,000 3,500 60,000 9,000 120,000 25,000 The average tax rate at the $60,000 level of income is

15.0

If your income increases from $10,000 per year to $14,000 per year and your tax payment increases from $2,000 to $2,840, the marginal tax rate

21

Answer the next question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Government Spending Tax Revenues GDP Year 1 $450 $425 $2,000 Year 2 500 450 3,000 Year 3 600 500 4,000 Year 4 640 620 5,000 Year 5 680 580 4,800 Year 6 600 620 5,000 If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is

275

Use the following information to answer the next question. Security Amount (in billions) Treasury bills $220 Corporate bonds 140 Treasury notes 80 Corporate stock 200 U.S. savings bonds 60 Treasury bonds 100 The public debt for the economy is

460

Answer the next question using the following budget information for a hypothetical economy. All data are in billions of dollars. Government Spending Tax Revenues GDP Year 1 $ 800 $825 $4,000 Year 2 850 850 4,200 Year 3 900 875 4,350 Year 4 950 900 4,500 Year 5 1,000 925 4,600 The budget deficit was $75 billion in year

5

Answer the next question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Government Spending Tax Revenues GDP Year 1 $450 $425 $2,000 Year 2 500 450 3,000 Year 3 600 500 4,000 Year 4 640 620 5,000 Year 5 680 580 4,800 Year 6 600 620 5,000 A budget surplus occurred in year

6

The public debt is the

accumulation of all past deficits minus all past surpluses.

Most economists believe that property taxes

are regressive.

Most of the U.S. public debt is owed to the nation's citizens and domestic institutions. This is one reason that the public debt

does not impose a large burden on future generations.

Which of the following is the largest expenditure item of state governments?

education

Which one of the following is not an excise tax of the federal government?

general sales tax

A federal budget deficit is financed by the

government issuance or sale of Treasury securities.

Use the following diagram to answer the next question. In the diagram, solid arrows reflect real flows and broken arrows are monetary flows. Flow (1) might represent

government provision of highways for truck transportation.

A budget surplus means that

government revenues are greater than expenditures in a given year.

Public finance is the subdiscipline of economics that studies the various ways in which

governments raise and expend money.

The marginal tax rate is the

increase in taxes as a percentage of an increase in income.

Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have

increased by $20 billion.

To track the public debt over time and understand its significance to the economy, it is best

measured relative to the gross domestic product.

Use the following figure to answer the next question. If box E represents government, box C businesses, and box A households, then flows (11) and (12) would represent

net taxes.

The Social Security tax is regressive because

no Social Security tax is collected for incomes in excess of a "cap" income level.

The two largest sources of tax revenue for the U.S. federal government are

personal income taxes and payroll taxes.

The circular flow model with government included would show that government

provides goods and services to businesses and households and pays for them with net taxes.

If everyone pays a fixed dollar amount of tax, then the tax is a

regressive tax.

With a tax of $2,000 on $30,000 of income, and $2,000 on $70,000 of income, we can describe the structure of this tax as

regressive.

A federal budget deficit exists when federal government

spending exceeds tax revenues in a given year.

A public debt that is owed to foreigners can be burdensome because

the payment of interest reduces the volume of goods and services available for domestic uses.

If the marginal tax rate is 20%, by how much must income have increased if your tax bill increases by $300?

1500

Which of the following is not a government activity that is involved in public finance?

Regulating the activities of firms in the financial sector of the economy.

The total amount of debt owed by the federal government is represented by the total value of the outstanding

U.S. government securities.

Joe complains that 32% of his income last year went to taxes. He is referring to his

average tax rate.

The following data represent a personal income tax schedule. Answer the next question on the basis of this information. Taxable Income Total Tax $15,000 $ 1,500 30,000 3,500 60,000 9,000 120,000 25,000 As income increases, the marginal tax rate

increases.

One of the potential consequences of the public debt is that it may

lead to additional future taxes that reduce economic incentives.

The largest expenditure of the U.S. Federal government is for

pensions and income security.

Which is the most important source of tax revenue for local governments?

property taxes

The two reasons why bankruptcy is a false concern about the public debt are

refinancing and taxation.

A tax structure is called progressive when

the average tax rate decreases if income decreases.