Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 24, Problem 3.2P
Subpart (a):
To determine
Current Debt to GDP ratio
Subpart (b):
To determine
Budget deficit or surplus.
Subpart (c):
To determine
Budget deficit or surplus.
Subpart (d):
To determine
Analyzing the proposal.
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Lilliput is a country that has closed borders and does not import or export any goods or services; hence, they do not worry about trade with other countries.
Total spending for the federal government of Lilliput for the last fiscal year was $1.06$1.06 billion. The country collected $1.05$1.05 billion in taxes during this same fiscal year. Assume government transfers were zero.
Based on this information, what is Lilliput's budget balance?
Enter your answer to two decimal places.
budget balance: $ ______ billion
In the last fiscal year, Lilliput was running
a. a budget surplus
b. a balanced budget
c. a budget deficit
16) The U.S. National Commission on Fiscal Policy and Reform has recommended changes to government expenditures and taxes which they claim would reduce the increase in the national debt between 2012 and 2020 to $4 trillion rather than $8 trillion. What are the commission's 5 recommendations?
17) Explain the reason why the debt-to-GDP ratio in the United States is expected to explode between now and the year 2042.
18) For each of the following policy options the government can undertake to make the debt sustainable, explain the economic consequences and the resulting change to potential GDP:
a. increasing seigniorage
b. increasing taxes on wages
c. increasing taxes on capital income
d. decreasing expenditure on government capital goods
e. decreasing expenditure on transfer programs such as Social Security, Medicare, and Medicaid
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-GDP ratio,
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, 1
therefore propose that goverment 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
Goverment expenditures
Goverment transfer payments
Interest payment
Personal income tax receipts
Corporate income tax receipts
Contributions for social insurance
$20 million…
Chapter 24 Solutions
Principles of Economics (12th Edition)
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