1) According to the tax smoothing theory, countries anticipating strain due to an aging population a. should lower taxes b. should not experience a change on debt accumulation because Ricardian equivalence holds c. should experience a lower government debt accumulation d. should experience a higher government debt accumulation 2) The broad-based long-run trend in debt accumulation is explained by a. dynamic efficiency theory b. political economy theories c. tax-smoothing theory d. safe asset provision theory 3) The Gross Debt of the US Government (% of GDP) is approaching record levels due to a. a secular expansion of government spending in wages and salaries and tax revenue not rising as rapidly b. tax revenue not keeping pace with the expansion of government spending c. an increase in government spending with not changes in taxes policies d. an increase in government spending in infrastructure and national defense 4) The main challenges on a setting a carbon tax are a. establishing the marginal social cost of carbon, monitoring carbon emissions, calibrate it to hit future emissions b. monitoring carbon emissions, distributing its revenue, calibrating it to hit future emissions c. establishing the marginal social cost of carbon, monitoring all greenhouse gases emissions, and distributing its revenue d. monitoring carbon emissions, calibrating it to hit future emissions, and reducing its regressivity 5) One of the main recommendations to limit the government debt is a. increase taxes b. reduce political polarization and electoral uncertain c. create political consensus on taxes and government spending d. adoption of fiscal rules 6) The volatility of allowance prices in the cap-and-trade program can be attributed to a. a highly inelastic demand for allowances b. low prices charges for allowances c. high prices charged for allowances d. a highly inelastic supply of allowances 7) In the cap-and-trade program a. firms with low abatement costs buy permits b. firms with low abatement costs buy permits and firms with high abatement costs sell permits c. firms with high abatement costs sell permits d. firms with low abatement costs sell permits and firms with high abatement costs buy permits

1) According to the tax smoothing theory, countries anticipating strain due to an aging population a. should lower taxes b. should not experience a change on debt accumulation because Ricardian equivalence holds c. should experience a lower government debt accumulation d. should experience a higher government debt accumulation 2) The broad-based long-run trend in debt accumulation is explained by a. dynamic efficiency theory b. political economy theories c. tax-smoothing theory d. safe asset provision theory 3) The Gross Debt of the US Government (% of GDP) is approaching record levels due to a. a secular expansion of government spending in wages and salaries and tax revenue not rising as rapidly b. tax revenue not keeping pace with the expansion of government spending c. an increase in government spending with not changes in taxes policies d. an increase in government spending in infrastructure and national defense 4) The main challenges on a setting a carbon tax are a. establishing the marginal social cost of carbon, monitoring carbon emissions, calibrate it to hit future emissions b. monitoring carbon emissions, distributing its revenue, calibrating it to hit future emissions c. establishing the marginal social cost of carbon, monitoring all greenhouse gases emissions, and distributing its revenue d. monitoring carbon emissions, calibrating it to hit future emissions, and reducing its regressivity 5) One of the main recommendations to limit the government debt is a. increase taxes b. reduce political polarization and electoral uncertain c. create political consensus on taxes and government spending d. adoption of fiscal rules 6) The volatility of allowance prices in the cap-and-trade program can be attributed to a. a highly inelastic demand for allowances b. low prices charges for allowances c. high prices charged for allowances d. a highly inelastic supply of allowances 7) In the cap-and-trade program a. firms with low abatement costs buy permits b. firms with low abatement costs buy permits and firms with high abatement costs sell permits c. firms with high abatement costs sell permits d. firms with low abatement costs sell permits and firms with high abatement costs buy permits

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1) According to the tax smoothing theory, countries anticipating strain due to an aging population

a. should lower taxes

b. should not experience a change on debt accumulation because Ricardian equivalence holds

c. should experience a lower government debt accumulation

d. should experience a higher government debt accumulation

2) The broad-based long-run trend in debt accumulation is explained by

a. dynamic efficiency theory

b. political economy theories

c. tax-smoothing theory

d. safe asset provision theory

3) The Gross Debt of the US Government (% of GDP) is approaching record levels due to

a. a secular expansion of government spending in wages and salaries and tax revenue not rising as rapidly

b. tax revenue not keeping pace with the expansion of government spending

c. an increase in government spending with not changes in taxes policies

d. an increase in government spending in infrastructure and national defense

4) The main challenges on a setting a carbon tax are

a. establishing the marginal social cost of carbon, monitoring carbon emissions, calibrate it to hit future emissions

b. monitoring carbon emissions, distributing its revenue, calibrating it to hit future emissions

c. establishing the marginal social cost of carbon, monitoring all greenhouse gases emissions, and distributing its revenue

d. monitoring carbon emissions, calibrating it to hit future emissions, and reducing its regressivity

5) One of the main recommendations to limit the government debt is

a. increase taxes

b. reduce political polarization and electoral uncertain

c. create political consensus on taxes and government spending

d. adoption of fiscal rules

6) The volatility of allowance prices in the cap-and-trade program can be attributed to

a. a highly inelastic demand for allowances

b. low prices charges for allowances

c. high prices charged for allowances

d. a highly inelastic supply of allowances

7) In the cap-and-trade program

a. firms with low abatement costs buy permits

b. firms with low abatement costs buy permits and firms with high abatement costs sell permits

c. firms with high abatement costs sell permits

d. firms with low abatement costs sell permits and firms with high abatement costs buy permits

Expert Solution

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Introduction

Answer 1) Tax smoothing: Tax smoothing theory is a theory based on public finance that suggests that during the times of unanticipated spending that the government has to go through, it is better to finance those spending by rising government debts. If these spending needs will be financed by any revenue-raising method used by the government, it will be a costly affair for the economy most likely in short term. By issuing debt, the cost burden can be transferred in the future.

However, when there is any anticipated issue like a strain on the country due to its aging population, tax smoothing theory will suggest not to accumulate debt.

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