Liberty
University ECON 214 Problem
Set 4 solutions answers right
1) Explain
the difference between a budget deficit and the national debt.
2) Use
the Marginal Income Tax Rates in Figure 15.6 (see p. 463) to compute the
following:
a. Tax
due on taxable income of $100,000, $200,000, and $500,000.
b. Average
tax rate on taxable income of $100,000, $200,000, and $500,000.
3) Greece,
Ireland, Portugal, and Spain all went through national budget difficulties in
recent years. Use the data below to answer questions regarding the sovereign
debts of these nationals (All data comes from the OECD and is in billions of
current US dollars.).
|
|
2000
|
|
2010
|
||
|
|
Debt
|
GDP
|
|
Debt
|
GDP
|
|
Greece
|
$138
|
$127
|
|
$455
|
$308
|
|
Ireland
|
$34
|
$98
|
|
$ 124
|
$206
|
|
Portugal
|
$62
|
$118
|
|
$ 203
|
$231
|
|
Spain
|
$292
|
$586
|
|
$734
|
$1,420
|
a. Compute
the debt-to-GDP ratio for all four nations in both 2000 and 2010.
b. Compute
the average yearly budget deficit for each of the nations over this period.
c. In
your judgment, which of the four nations was in the worse fiscal shape in
2010? Use your computations from above
to justify your answer.
4) Explain
the differences between typical demand side fiscal policy and supply side
fiscal policy. For each of the following fiscal policy proposals, determine
whether the primary focus is on aggregate demand or aggregate supply or both.
a. A
$1000 per person tax reduction.
b. A
5% reduction in all tax rates.
c. Pell
grants, which are government subsidies for college education.
d. Government
sponsored prizes for new scientific discovery.
e. An
increase in unemployment compensation.
5) Fill
in the blanks in the table below. Assume that the MPC is constant over everyone
in the economy.
|
MPC
|
Spending multiplier
|
Change in Government
Spending
|
Change in Income
|
|
|
5
|
50
|
|
|
|
2.5
|
|
-500
|
|
0.5
|
|
300
|
|
|
0.2
|
|
|
1000
|
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