Chapter 28: Federal Budgets: The Tools of Fiscal Policy - ECON 200

Use the following table of marginal tax rates to calculate the total income tax paid by someone earning $70,000.

$13,530

The table below lists some fictional countries. Calculate the debt-to-GDP ratio for each of them, then put them in order of their fiscal condition, worst to best. Numbers are in billions of dollars.

Grazia; Solregia; Okonada; Colambas; Nopomo

Which of the following describes a progressive income tax system?

Tax as percentage of income rise with increasing income

Match each term to its definition.

a situation in which revenue exceeds outlays (surplus) the total of all accumulated and unpaid deficits (debt) a situation in which outlays exceed revenue (deficit) the fee that borrowers pay to debt holders (interest)

Select the correct definition of publicly held national debt.

debt held by anyone besides the federal government

Fill in the blanks to complete the passage about one of the three main categories of U.S. government outlays. Interest payments are payments made (blank) current owners of (blank). Because these payments are determined by the level of government (blank) and therefore are (blank) adjustable, they can be considered a type of (blank) payment.

to; U.S. Treasury bonds; debt; not readily; mandatory

Place the spending categories in order by their share, greatest to least, of the 2014 U.S. federal budget.

1- SS2 2 - income assistance 3- Medicare , 4 - defense 5- interested on debt

Match each U.S. president to the action he took regarding federal income tax rates.

1- pushed for increases to the top marginal rate, which then rose to just under 40%: Bill Clinton 2- pushed for reductions in the top marginal rate, which eventually dropped all the way to 28%: Ronald Reagan 3- pushed for a reduction of the top marginal rate, which then dropped to 70%: John F. Kennedy 4- pushed for a temporary reduction in the top marginal rate, to 35%: George W. Bush 5- pressed Congress to increase top marginal rates, which rose to 80%: Franklin D. Roosevelt

Match each major factor responsible for recent changes in federal spending to the correct trend description.

1- significant spending growth over the last three decades: Social Security and Medicare 2- huge spending growth after 2007: anti-recession measures 3- some ups and downs, but generally well down from the 1960s: defense

Fill in the blanks to complete the passage about social insurance tax. As of 2016, social insurance tax on a typical worker's income is calculated as (blank) of the worker's pretax paycheck amount. Only (blank) of that amount is actually deducted from the worker's paycheck. The other (blank) is paid by the employer. Self-employed individuals, however, must pay the full (Blank) themselves. For Social Security, though not for Medicare, the amount of income taxed is capped. The cap for 2016 is (Blank).

1. 15.3% 2. 7.65% 3. 7.65% 4. 15.3% 5. $118,500

Fill in the blanks to complete the passage about the history of U.S. income tax. The U.S. Constitution was amended to allow the federal government to collect an income tax in (blank). Prior to that date, most tax revenues were generated by (blank) taxes. The income tax originally set the highest marginal tax rate at (blank), however, marginal rates have risen substantially since then. During the 1950s, the top rate rose above (blank).

1913; import; 6%; 90%

Over the last 100 years, marginal tax rates have been fluctuating constantly. Place the years in order by how high the top marginal rate was at the time. Place the year with the highest rate first.

1945, 1964, 2012, 1913

Use the following table of marginal tax rates to calculate the average income tax rate, as a percentage of total income, paid by someone earning $500,000.

30.4%

Assume a nation is starting with zero national debt. If government outlays and tax revenue are as shown, and the nation's GDP is $12 billion at the end of Year 3, what is its debt-to-GDP ratio at that time? Round to the nearest whole percent.

33%

Click on the two wedges that represent payroll tax revenue as a share of total U.S. federal government tax revenue in 2014.

34% + 46%

A 2003 change to Medicare eliminated reimbursement for prescription drugs as one of its benefits.

False

What is a government budget?

It is a plan for spending government funds. It is a plan for raising funds for the government.

Label each scenario on the right with the type of taxes it is subject to. More than one label might match a scenario.

Melanie orders a TV that must be imported from overseas. (Customs) John inherits 10 acres of land from a deceased relative. (Estate and gift) Melissa's art supply store made $500,000 in profit this year. (Corporate income) Justin receives his first paycheck for his new job as a sales manager. (Social insurance) (income) Brianna purchases a pack of cigarettes. (Excise)

Which taxes are payroll taxes? That is, which taxes are normally paid in the form of deductions from a worker's paycheck?

Social Security tax Medicare tax

In the United States, a person's marginal tax rate is generally higher than the same person's average tax rate.

True