ECO Chapter 15
Drag the countries' names into their proper locations on the chart, which shows debt-to-GDP ratios (in percentages) for the year 2017.
Figure 15.12
The largest U.S. budget deficit in any year since 1960 occurred as a consequence of the Great Recession of 2008-2009.
TRUE (The deficit was about $1.4 trillion in 2009.)
Use the following table of marginal tax rates to calculate the total income tax paid by someone earning $70,000. Keep in mind that when calculating taxes, you leave off the cents.
11,258 (The tax is (10% of $9,700) + (12% of 39,475-9701) + (22% of 70,000-39,476).
Calculate the federal income tax liability of a worker who earned $522,503 in 2019, and who takes the standard deduction of $12,200. Keep in mind that calculations of federal income tax drop any numbers after the decimal point.
153,799.00 This result is from first subtracting the standard deduction of $12,200, and then calculating the results of ($9,700 × .10)+ ([$39,475 - $9,700] × .12)+ ([$84,200 - $39,475] × .22+ ([$160,725 - $84,200)] × .24)+ ($204,100 - $160,725] × .32)+ ([$510,300 - $204,100] × .35)+ ($3 × .37),
Over the last 100 years, marginal tax rates have changed frequently. 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
Select the time frame during which there was a significant budget surplus.
2000's (This is the only significant period in which the government had a budget surplus since 1965.)
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%
Fill in the blanks to complete the passage about funding for Social Security and Medicare.
Both Social Security and Medicare are government programs concentrated on the elderly population. Social Security is focused on providing retirement income, while Medicare provides health care for retired persons. For people to receive Social Security and Medicare payments, they must have paid money into the program when they were working. Upon reaching retirement age, they become eligible for payouts.
Select the correct definition of publicly held national debt.
Debt held by anyone else besides the federal government (A significant share of U.S. national debt is internal: one agency owing money to another. Publicly held national debt includes everything except for this "internal" debt.)
Fill in the blanks to complete the sentence about the federal deficit.
During the COVID-19 recession, the government spent twice as much as it collected in revenue, which led to a deficit of $3.3 trillion in 2020.
What is a government budget?
Example(s) of a Government Budget It is a plan for raising funds for the government. It is a plan for spending government funds. Not an Example of a Government Budget It is the record of the amount of currency in circulation. It is the difference between nominal GDP and real GDP.
A 2003 change to Medicare eliminated reimbursement for prescription drugs as one of its benefits.
FALSE Adding the prescription drug benefit for all retirees exacerbated Medicare's funding problem.
Fill in the blanks to complete the passage on U.S. government outlays.
In the decade between 2001 and 2010, real outlays grew by 37%. Total (nominal) outlays are now nearly $4 trillion per year, or more than $12000 per U.S. citizen.
Fill in the blanks to complete the passage about one of the three main groups of U.S. government outlays.
Interest payments are payments made to current owners of U.S. Treasury bonds. Because these payments are determined by the level of government debt and the interest rate and therefore are not readily adjustable, they can be considered a type of mandatory payment.
Identify the major factors of the significant increase in government spending from 2001 to 2009.
Major Factor of Increase in Government Spending Social Security and Medicare spending defense spending the Great Recession Not a Major Factor of Increase in Government Spending payments to undocumented immigrants national debt regulatory costs
Which taxes are major taxes on income? That is, which taxes are normally paid in the form of deductions from a worker's paycheck?
Major Tax income tax Social Security tax Medicare tax Not a Major Tax property tax sales tax
Which of the following have been proposed as solutions to the funding problem of Social Security and Medicare?
Proposed as Solution means-testing increasing the retirement age using a different inflation adjustment for payouts Not Proposed as a Solution lowering the retirement age delaying people's payments into the program
Place the spending categories in order by their share, greatest to least, of the 2017 U.S. federal budget.
Social Security Medicare defense interest on debt
In the United States, a person's marginal tax rate is generally higher than the same person's average tax rate.
TRUE (The marginal tax rate, which is the tax on the next dollar earned, goes up as income increases.)
Which of the following describes a progressive income tax system?
Tax as a percentage of income rises with increasing income.(This scheme is called progressive because the percentage gets progressively higher. This is in contrast to a flat-tax system, where the percentage in principle remains constant.)
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 1913. Prior to that date, most tax revenues were generated by import taxes. The income tax originally set the highest marginal tax rate at 6%, however, marginal rates have risen substantially since then. During the 1950s, the top rate was close to its historically highest level, above 90%.
Fill in the blanks to complete the passage about foreign-owned U.S. debt.
The percentage of the U.S. federal government's debt owned by foreign entities went up from about 15% in 1990 to about 30% in 2018. It is important to remember, however, that foreign supply in the loanable funds market helps keep interest rates down, which benefits domestic borrowers. It is also worth noting that demand for U.S. Treasuries is a sign that other economies beside the United States' are prospering.
What kind of government expenditure is defined as payments made to groups or individuals when no good or service is received in return?
Transfer Payments
Which of the following statements are true about the 2020 federal budget?
True Statement(s) The deficit in 2020 was larger in real dollar terms than the deficit generated during World War II. Not a True Statement The deficit in 2020 was the second largest deficit in U.S. history. The deficit in 2020 can be solely attributed to the 2017 tax cuts, which reduced tax revenue. The deficit in 2020 was smaller than the deficit that occurred at the end of the Great Recession (2009).
Fill in the blanks to complete the passage about the role of the U.S. Treasury.
When the federal government has more outlays than revenue, it has to borrow money to make up the difference. The borrowing is accomplished by selling Treasury bonds to investors. The federal government borrows from both domestic and foreign investors, though most national debt is held domestically. (Financial experts keep a close watch on the interest rates being paid on U.S. Treasury bonds at any given time.)
During the period from 1970 to 2017, when was the U.S. federal budget in surplus?
Years in Surplus 1998-2001 Years Not in Surplus every year before 2009 1970-1974 1980-1988
Match each major factor responsible for recent changes in federal spending to the correct description of the trend as a proportion of federal spending.
significant spending growth over the last three decades Correct label:Social Security and Medicare huge spending growth after 2007anti-recession measures Correct label:anti-recession measures some ups and downs, but generally well down from the 1960s as a percentage of the federal budget Correct label:defense
Match each term to its definition.
the fee that borrowers pay to debt holders Correct label:interest the total of all accumulated and unpaid deficits Correct label:debt a situation in which outlays exceed revenue Correct label:deficit a situation in which revenue exceeds outlays Correct label:surplus
Match each U.S. president to the action he took regarding federal income tax rates.
pushed for a reduction of the top marginal rate, which then dropped to 70%John F. Kennedy Correct label:John F. Kennedy pushed for a temporary reduction in the top marginal rate, to 35%George W. Bush Correct label:George W. Bush pushed for reductions in the top marginal rate, which eventually dropped all the way to 28%Ronald Reagan Correct label:Ronald Reagan pressed Congress to increase top marginal rates, which rose to 80%Franklin D. Roosevelt Correct label:Franklin D. Roosevelt pushed for increases to the top marginal rate, which then rose to just under 40%Bill Clinton Correct label:Bill Clinton
Select the time interval in this period when mandatory spending was at its highest level as a percentage of the U.S. federal budget.
2017 (During this period, mandatory spending was considerably more than half of the total.)
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% (The deficit is $1 billion in Year 1, $2.5 billion in Year 2, and $0.5 billion in Year 3, for a total accumulated debt of $4 billion. That is 33% of $12 billion.)
Select the two wedges that represent individual income and social insurance tax revenue as a share of total U.S. federal government tax revenue in 2017.
35%, 48% (Social Security and Medicare taxes combined are more than one-third of the total.)(Taxes on individual incomes make up just under half of the total.)
Fill in the blanks to complete the passage about social insurance tax.
As of 2019, social insurance tax on a typical worker's income is calculated as 15.3% of the worker's pretax paycheck amount. Only half of that amount is actually deducted from the worker's paycheck. The other half is paid by the employer. Self-employed individuals, however, must pay the full amount themselves. For Social Security, though not for Medicare, the amount of income taxed is capped. The cap for 2019 is $118,500.
Match each proposed solution to the problems of Social Security/Medicare funding with the rationale behind it.
Average wages have historically risen faster than the cost of living has.using the consumer price index to adjust for inflation Correct label:using the consumer price index to adjust for inflation People are living longer and therefore spending more years taking money out.raising the retirement age Correct label:raising the retirement age People with ample savings need the post-retirement help less than people with no savings.means-testing Correct label:means-testing
Label each scenario on the right with the type of taxes it is subject to. More than one label might match a scenario.
Brianna purchases a pack of cigarettes. Correct label:excise Melanie orders a TV that must be imported from overseas Correct label:customs John inherits 10 acres of land from a deceased relative Correct label:estate and gift Melissa's art supply store made $500,000 in profit this year. Correct label:corporate income Justin receives his first paycheck for his new job as a sales manager. Correct label:income Correct label:social insurance
Fill in the blanks to complete the passage about the effect of tax rates on the federal deficit.
Corporate tax rates decreased as a result of the Tax Cuts and Jobs Act of 2017 (TCJA) from 35% to 21%. Most economists agree that the TCJA decreased government revenue in 2018 and was part of the reason why the federal budget deficit increased substantially that year.
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 Okonanda Colambas Nopomo
Fill in the blanks to complete the passage. Taxable income
In 2014, the middle-income quintile in the United States (20% of households) paid approximately 10% of all income and social insurance taxes paid. The wealthiest quintile paid about 70% of all income and social insurance taxes in 2014.
Identify each group of spending outlays as mandatory or discretionary.
Mandatory Medicare Social Security unemployment compensation income assistance food stamps Discretionary defense government employee salaries international aid funding for scientific research Figure 15.2
Fill in the blanks to complete the passage about mandatory outlays.
Mandatory outlays constitute the largest portion of the three groups of the U.S. federal budget. They are mandated by law and not subject to adjustment during the budget process. This group includes Social Security and Medicare.
Which of the following are demographic reasons why entitlement programs like Social Security make up a larger share of the federal budget now than when they were created?
Reason(s) The "baby boomer" generation will retire in record numbers over the next two decades. Life expectancy has increased approximately nine years since the creation of Social Security. The ratio of workers receiving benefits to workers paying in has grown, predictably, over time. Not a Reason The retirement age has been lowered from 65 to 60 years.
Identify the solutions to reduce the cost of Social Security that have been proposed by economists.
Solution Proposed by Economists adjust benefits computation using the consumer price index (CPI) increase the retirement age from 67 to 70 means-test for benefits Not a Solution Proposed by Economists separate additional accounts to reduce Social Security benefits reduce the retirement age from 67 to 65 transfer large amounts of general government revenue to the Social Security fund
Fill in the blanks to complete the passage on the U.S. national debt from 1990-2017.
The total amount of U.S. federal government debt has grown to almost $20 trillion in recent years, even exceeding annual GDP in the United States. But much of this debt is owned by agencies of the government itself (in other words, the government owes money to itself). Therefore, many economists focus instead on the debt held by the general public (i.e., anyone besides the U.S. government). This amount (shown in orange) is $13 trillion and constitutes 72% of U.S. GDP.
