Federal government expenditures and receipts for the simple economy of the nation of Topanga are listed in the table below. The government of Topanga would like to reduce the debt-to-GBP Falió, and the Finance Minister of Topanga has proposed the following: "The best way to reduce the debt-to-GOP ratio is to increase GDP, because with a larger GDP, the ratio will have to get smaller. I therefore propose that govemment expenditures be increased by 25 percent, personal income taxes be reduced by 25 percent, corporate income taxes be reduced by 25 percent, and contributions for social insurance be reduced by 25 percent. All of these moves will increase GDP by 10 percent by increasing consumer spending, business spending, and government spending by the exact amounts of the increased spending and reduced taxes." Debt GOP Government expenditures Goverment transfer payments Interest payment Personal income tax receipts Corporate income tax receipts Contributions for social insurance $20 million $50 million $5 million $5 million $1 million 56 million $1 million $4 million Assuming that GDP will, indeed, increase by 10 percent and the only changes to the data in the table are those proposed by the Finance Minister, answer the following questions: The current debt-to-GOP ratio is (Round your response to two decimal places) The current budget deficit or surplus is 5 million. (Round your response to the nearest whole number) With the proposals made by the Finance Minister, the new deficit or surplus will be s With the proposals made by the Finance Minister, the new debt-to-GDP radio will be The Finance Minister's proposals did not reduce the debt-to-GDP ratio because his plan OA decreased government revenue while increasing govemment spending OB. increased corporate spending C. increased consumer spending and debt D. Increased consumers disposable income million (Round your response to the nearest whole number) (Round your response to two decimal places)
Federal government expenditures and receipts for the simple economy of the nation of Topanga are listed in the table below. The government of Topanga would like to reduce the debt-to-GBP Falió, and the Finance Minister of Topanga has proposed the following: "The best way to reduce the debt-to-GOP ratio is to increase GDP, because with a larger GDP, the ratio will have to get smaller. I therefore propose that govemment expenditures be increased by 25 percent, personal income taxes be reduced by 25 percent, corporate income taxes be reduced by 25 percent, and contributions for social insurance be reduced by 25 percent. All of these moves will increase GDP by 10 percent by increasing consumer spending, business spending, and government spending by the exact amounts of the increased spending and reduced taxes." Debt GOP Government expenditures Goverment transfer payments Interest payment Personal income tax receipts Corporate income tax receipts Contributions for social insurance $20 million $50 million $5 million $5 million $1 million 56 million $1 million $4 million Assuming that GDP will, indeed, increase by 10 percent and the only changes to the data in the table are those proposed by the Finance Minister, answer the following questions: The current debt-to-GOP ratio is (Round your response to two decimal places) The current budget deficit or surplus is 5 million. (Round your response to the nearest whole number) With the proposals made by the Finance Minister, the new deficit or surplus will be s With the proposals made by the Finance Minister, the new debt-to-GDP radio will be The Finance Minister's proposals did not reduce the debt-to-GDP ratio because his plan OA decreased government revenue while increasing govemment spending OB. increased corporate spending C. increased consumer spending and debt D. Increased consumers disposable income million (Round your response to the nearest whole number) (Round your response to two decimal places)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Transcription and Explanation of Economic Scenario for the Nation of Topanga**
The economic overview presents the federal government expenditures and receipts of the nation of Topanga, with a focus on strategies to reduce the debt-to-GDP ratio. The Finnish Minister of Topanga proposes increasing GDP to decrease the debt-to-GDP ratio, assuming that larger GDP will reduce the ratio despite the debt not becoming smaller.
**Key financial data includes:**
- **Debt:** $20 million
- **GDP:** $50 million
- **Government Expenditures:** $55 million
- **Government Transfer Payments:** $5 million
- **Interest Payment:** $1 million
- **Personal Income Tax Receipts:** $10 million
- **Corporate Income Tax Receipts:** $4 million
- **Contributions for Social Insurance:** $4 million
**Proposal Details:**
1. **Reduce Government Expenditures:** Decrease by 25%.
2. **Reduce Personal Income Taxes:** Decrease by 25%.
3. **Reduce Corporate Income Taxes:** Decrease by 25%.
4. **Reduce Contributions for Social Insurance:** Decrease by 25%.
These reductions aim to boost GDP by increasing consumer spending, business investment, and public expenditure.
**Analytical Questions:**
1. Calculate the current budget deficit or surplus.
2. Assess what the new deficit or surplus will be following the Finance Minister's proposals.
3. Determine the new debt-to-GDP ratio post-proposal.
4. Evaluate why the Finance Minister's proposal does not reduce the debt-to-GDP ratio.
**Responses:**
- **Choose from:**
- Increased government revenue while increasing government spending
- Increased corporate spending
- Increased consumer spending and debt
- Increased consumers’ disposable income
These insights form part of the economic analysis and strategic planning for Topanga, emphasizing fiscal adjustments to enhance national economic health.
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