Econ CH28

You have been hired as an economic advisor for a politician running for national office. The politician, at a recent campaign event, said that corporations are paying too much in taxes and are funding most of the federal government's operations. When you speak to the politician after the event, what would you say?

"We have a great deal of work to do. On the news tonight I predict there will be an expert correcting you and questioning why anyone would vote for you. Individuals, through income tax and social insurance taxes, provide the bulk of government revenue."

How much did the deficit in 2010 contribute to the national debt if the national debt was $14,025 billion and nominal GDP was $14,499 billion?

$1,305 billion

Refer to the above data. 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 billion.

If nominal GDP in 2009 was $13,973 billion, approximately how much did the government spend?

$3,000 billion

In 2012, nominal GDP in the United States was $15,684 billion. Approximately how much did the U.S. government borrow from foreigners if foreign-held debt was 30% in 2012?

$329.4 billion

Suppose you land a job with Google right out of college. Your economics training is very valuable to them, so you receive a starting annual salary of $65,000. What is the total amount of social insurance taxes you will be responsible for after your first year of work?

$4,972.50

The Smith household's annual income is $250,000. Based on the U.S. federal tax rates below, calculate the total income tax that the Smiths have to pay on their household income. Assume zero tax deductions for solving this problem.

$67,028

Suppose you use your entrepreneurial spirit and economics training to start your own business. In your first year of work, you are able to earn $58,000 in gross income. What is the total amount of social insurance taxes you owe the federal government?

$8,874.00

What is the debt-to-GDP ratio of Cyprus, according to the accompanying table?

1.0

In 2012, revenue from corporate income taxes totaled approximately:

10% of total revenue.

Using the data shown in the table below, the debt-to-GDP ratio for Greece in 2001 was _______ and the debt-to-GDP ratio for Greece in 2011 was _________.

103.7%; 170.3%

The total current tax rate for Social Security and Medicare is:

15.3%.

When Social Security was first instituted by President Franklin Roosevelt in 1935, the payroll tax rate on wages used to fund the program was:

2%.

Use the marginal income tax rates shown here to calculate the average tax rate on an income of $100,000. Average tax rate on $100,000 of income is ____________.

21.46%

Refer to the following table to answer the questions that follow. Using the table, what is the marginal income tax rate for someone who makes $67,000 per year?

25.0%

Use the marginal income tax rates shown here to calculate the average tax rate on an income of $200,000. Average tax rate on $200,000 of income is ___________.

25.26%

The Smith household's annual income is $250,000. Based on the U.S. federal tax rates below, calculate the average tax rate for the Smith household. Assume zero tax deductions for solving this problem.

26.8%

Refer to the following table to answer the questions that follow. Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $85,650 per year?

28%

Refer to the above data. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is:

3.9 percent.

Since 1990, for how many years has the government run a budget surplus?

4

The number of workers per Social Security beneficiary in 1960 was approximately:

5.1.

In 2008, in the midst of the Great Recession, the national debt was $10,024 billion. Nominal GDP in 2009 was $13,973 billion. What was the debt-to-GDP ratio in 2009?

82%

Which of the following is true regarding the nature of a progressive income tax system?

A person with higher income pays more tax dollars than someone with a lower income.

Why did tax revenues fall so sharply after 2007?

A slowdown in economic activity increased unemployment.

If the government currently has a budget deficit, then

All of the above are correct.

What does Figure 15.7 (above) show about taxes paid by Americans over the 1980-2008 period?

All of the above.

Use the following table to answer the questions that follow. According to the table, which country appeared to be in the best fiscal shape in 2012?

Australia

Use the following table to answer the questions that follow. According to the table, the country with the largest decrease in the debt-to-GDP ratio over the time period is:

Belgium

Why was the world so concerned about Greece defaulting on its debt?

Countries in the European Union held a large quantity of Greek debt, so there was a concern that a Greek default would cause other European countries to default.

Why does the federal debt tend to increase during periods of recession?

Economic activity decreases, which decreases revenues and increases outlays.

Based on the data below, which of the four nations was in the worst fiscal shape in 2010? (All data comes from the OECD and is in billions of current U.S. dollars.)

Greece, because it had the highest debt-to-GDP ratio in 2010.

What would happen if a country defaulted on its sovereign debt?

It could lead to a deep recession—the effects of which might spill over into other countries.

If the government reduces the retirement age from 67 to 65, what effect will this have on government entitlement programs like Social Security?

It will increase the government's burden from entitlement programs.

Use the following table to answer the questions that follow. According to the table, which country appeared to be in the worst fiscal shape in 2012?

Italy

Which country faces the most severe fiscal challenges—in terms of debt-to-GDP ratio—according to the accompanying table?

Jamaica

Which of the following is the correct ranking of countries in descending order in terms of their publicly held debt-to-GDP ratios for 2010?

Japan > Greece > United Kingdom > United States

According to the textbook, the country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is:

Japan.

Why do Social Security and Medicare pose problems for the federal government budget?

Life expectancy of retirees is increasing.

Which of the following is true regarding the U.S. government's budget?

Over the years, the percentage of mandatory spending in total outlays has increased, while that of discretionary spending has decreased.

Which of the following would be considered a transfer payment by the government?

The government helps senior citizens cover their monthly expenses with a cash payment.

Why do Social Security and Medicare pose problems for the federal government budget?

The number of retirees is increasing.

Which of the following statements are true about deficits versus debt?

The sum of all deficits equal the debt.

Why do Social Security and Medicare pose problems for the federal government budget?

The worker-to-retiree ratio is decreasing.

The federal government started running a budget surplus in 1998. By 2002, the budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002?

There was increased military spending in response to the 9/11 terrorist attacks.

Why are interest payments considered mandatory spending in the federal budget?

They are considered mandatory spending because not making such payments could endanger the government's credit rating, which could make it harder to borrow going forward.

Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security. What is a potential problem with this proposed solution?

This solution might only be a temporary fix, as it does not address the fundamental issue of a growing elderly population and a shrinking working population.

Which country holds the most U.S. debt?

United States

Why do wealthy citizens contribute much more tax revenues to the government than poor citizens?

Wealthy citizens have much more taxable income than poor citizens.

Are demographics an important factor when planning the federal budget?

Yes, because many government benefits are received by the fast-growing elderly population, causing implications for future levels of taxation and government benefits for everyone.

Should average citizens be concerned with the government's budget?

Yes, because the government's yearly budget decisions have immediate and future implications for levels of taxation and the provision of public goods.

A budget is:

a plan for spending and earning money.

During the Great Recession, government outlays were _________ and government revenues were _________ their long-run averages over the period 1960-2012.

above; below

Due to ____________, government outlays have risen quickly since 2000.

an aging population

One proposed solution to the funding problems faced by Social Security and Medicare is to increase the retirement age from 67 to 70. Although this would mean billions of dollars in savings for these federal programs, an unintended consequence may be:

an increase in the unemployment rate.

Typically, the average tax rate for a person is ____________ their marginal tax rate, because ____________.

below; the marginal tax rate applies to the last dollars taxed, but not to all income

The funds used for payments to Medicare recipients come primarily from:

both the employer's and employee's portion of payroll taxes.

Between 2000 and 2010, real government outlays in the United States grew:

by more than 50%.

What is the most appropriate way to compare budget deficits/surpluses across time?

calculating figures as a portion of gross domestic product (GDP)

During the Great Recession, the ratio of U.S federal outlays to GDP _____________ the long-run average, and ratio of revenue to GDP ____________ the long-run average.

climbed above; dipped below

The top 1% of households in the United States:

contribute nearly 40% of all federal income tax revenues.

The wealthiest 20% of households in the United States:

contribute the vast majority of all federal income taxes.

Suppose that over the past 50 years, the nominal and real deficit of a country grew from $100 billion to $200 billion. Suppose that, over the same time, real GDP grew from $100 billion to $300 billion. Using __________, we can give an accurate picture of what happened in the country and conclude that the country is __________.

deficit-to-GDP ratio; better off

Federal government spending has grown quickly since 2007 primarily because of:

expansionary fiscal policy in response to the Great Recession.

Payroll taxes:

generate revenues earmarked for mandatory spending purposes.

A U.S. federal government budget deficit occurs when:

government outlays exceed revenue.

The most recent federal budget surplus occurred:

in 2001.

The fear about Social Security is that

in several years, there will not be enough funds to cover 100 percent of promised benefits

Budget deficits tend to:

increase during recessions.

Which of the following would help to fix Social Security problems?

increase the retirement age

The Vietnam War and the Great Society in the 1960s caused government outlays to _______ in the last half of the decade, and the 2001 tax cuts and the War on Terror caused the deficit as a percentage of GDP to _______.

increase; increase

The federal budget deficit has grown so quickly in the past 5-10 years because of:

increased spending on entitlement programs.

The largest source of tax revenue for the government is:

individual income taxes.

Which of the following is included in government outlays?

interest paid by the Federal Reserve to member banks for deposits.

Discretionary spending by the government is spending that

is under the direct control of congress

According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?

less than $28,000 but greater than $15,000

Over the next 20 years, the number of workers per Social Security beneficiary is predicted to be:

less than 3 but more than 2.

Social Security and Medicare spending continue to grow and take up larger shares of the federal budget because:

life expectancy is increasing, the number of people receiving benefits is increasing quickly, and the growth in the number of people paying into the programs is decreasing.

Over the next 20 years, an increasing number of baby boomers are expected to retire. Which of the U.S. government's budget categories is likely to be most affected due to this trend?

mandatory

The largest portion of the federal budget is dedicated to:

mandatory outlays.

The most relevant tax rate for making decisions about earning additional income is the:

marginal tax rate.

Suppose you return to college and earn an MBA, after which you get an upper-management position with Yum! Brands. If the tax rates are the same as in 2012 and your starting salary is $125,000, how much will you owe in federal social insurance taxes?

more than $8,400 but less than $8,800

The poorest 40% of households in the United States:

pay negative income taxes because of tax credits and income assistance.

Which of the following is considered mandatory government spending?

payments to Social Security recipients

Which of the following is considered discretionary government spending?

payments to government employees

Entitlement programs such as Social Security and Medicare are primarily funded with

payroll taxes.

The United States has a:

progressive income tax system.

The _____ is the sum of past _____.

public debt; budget deficits

During the _________ phase of the business cycle, government expenditures tend to ____ and tax revenue tends to fall.

recessionary; rise

The austerity measures imposed on Greece in 2011:

required reforms to Greece's large public sector in an attempt to decrease its debt and help the country avoid default.

Which of the following is not a revenue source for the U.S. federal government?

sales taxes

Which of the following is the second largest source of tax revenue for the U.S. government?

social insurance tax

The Federal budget deficit is found by:

subtracting government tax revenues from government spending in a particular year.

The government is said to have a budget surplus when

taxes exceed outlays.

Discretionary government spending includes payments made for:

the Department of Education.

Use the following table to answer the questions that follow. According to the table, the country with the highest average yearly budget deficit over the time period is:

the United States.

Use the following table to answer the questions that follow. According to the table, the country with the largest increase in the debt-to-GDP ratio over the time period is:

the United States.

If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:

the federal budget deficit was $1.6 trillion.

If government revenues in 2000 were $2.0 trillion and government outlays were $1.8 trillion, this means that:

the federal budget surplus was $200 billion.

If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:

the federal debt increased $1.6 trillion.

A marginal tax rate is:

the tax rate paid on a worker's next dollar of income.

Suppose you graduate with an accounting degree and then become a certified public accountant. You work for a big firm, but are offered a chance to prepare tax documents for your city government as an independent contractor. The city offers to pay you a consulting fee of $10,000. When deciding whether to accept the additional work, the most important tax factor in your decision is:

your marginal tax rate.