EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 31, Problem 8DQ
To determine
Absolute and relative size of public debt.
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Question 16
The country of Opulencia loves to live large, but has a major debt problem. It has a national debt of
$800 billion, $400 billion in intergovernmental borrowing, $160 billion in bonds held by domestic
citizens, and $240 billion in bonds held by foreign citizens. Opulencia's public debt is equal to:
O $400 billion
O $640 billion
O $960 billion
O $1,200 billion
Suppose that a family's income is exactly the same as the poverty threshold.
This family's income deficit would be
and their ratio of income to poverty would be
O 0; 1
0 ; 0
1;0
O 1;1
Consider a family of four in 2008, whose poverty threshold is $22,024. If this family's total income was $12394, what
would their income deficit be?
income deficit: $
If the government deficit/GDP ratio remains constant at 6% a year, the real GDP growth rate is 4% a year and the real interest
rate is 1%, the public debt/GDP ratio will converge to the equilibrium level at
O 210%
O 305%
O 208%
O 368%
Chapter 31 Solutions
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- Suppose that the federal government had a budget deficit of $60 billion in year 1 and $70 billion in year 2, but that it experiences budget surpluses of $50 billion in year 3 and $10 billion in year 4. Also assume that the government uses any budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have decreased by $60 billion. decreased by $57.5 billion. increased by $60 billion. increased by $190 billion.arrow_forward10. Study Questions and Problems #10 Evaluate the following statement explaining why our grandchildren may not suffer the entire burden of a federal deficit. True or False: The burden of the national debt on present and future generations depends on who owns the accumulated national debt. If the debt is owned internally, then debt payment is simply a transfer of income between households in the nation in the future. O True O False portion of available tax If, over time, real government budget deficit remains unchanged, and national debt continues to increase, a dollars will be spent on interest payments on the debt, and as a result, can be spent on highways, health care, defense, and other public-sector programs.arrow_forwardConsider the following data about government debt and deficit in a given year - real interest rate on government bonds = 1% -growth rate of real GDP = 1% - current debt-to-GDP ratio = 25% - primary budget deficit as a percentage of GDP = 2% Over this one-year period the debt-to-GDP ratio will have O A. risen by 0.2 percentage points. OB. remained unchanged. OC. risen by 2 percentage points. OD. fallen by 2 percentage points. O E. fallen by 0.2 percentage points.arrow_forward
- Which of the following is correct? 1) Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions. 2) The goal of expansionary fiscal policy is to rein in inflation. 3) Expansionary fiscal policy tends to lead to a smaller budget deficit. O 4) Expansionary fiscal policy is always better than contractionary fiscal policy for 4) the economy.arrow_forward12. Suppose that, in January, the interest rate is 5 percent and firms borrow $50 billion per month for investment projects. In February, the federal government doubles its monthly borrowing from $25 billion to $50 billion. That drives the interest rate up to 7 percent. As a result, firms cut back their borrowing to only $30 billion per month. Answer by filling blanks below. There is a crowding-out effect of $20 billion. A crowding-out effect occurs when increased government borrowing drives ( down, up ) interest rates and thereby reduces investment by firms. That is in this scenario, where the government's decision to double its monthly borrowing drives up the interest rate from 5 to 7 percent, causing firms to cut back on their investment spending by $ 5 percent interest rate – $ billion per month (= $ billion per month at the new 7 percent interest rate). billion per month at the oldarrow_forwardWhich of the following is true? O A) budget deficit is an accumulation of all prior budget national debts B) budget deficit is an accumulation of all prior budget national debts minus national surpluses OO budget deficit and national debt are the same thing. D) national debt is an accumulation of all prior budget deficits minus budget surplusesarrow_forward
- Q No.3 What we mean by Economic dues in case of Fiscal Policy in Islamic Economy? Discuss the function of Economic dues in the context of Zakah as a non-discretionary fiscal policy tool of Islamic Economy.arrow_forwardRefer to the tax table below. If your taxable income is $8,000, your average and marginal tax rates are Taxable Income Total Tax $ 2,000 $ 200 4,000 600 6,000 1,200 8,000 2,000 10,500 3,000 25% average rate and 25% marginal rate on additional income. 25% average rate and 40% marginal rate on additional income. 20% average rate and 30% marginal rate on additional income. 25% average rate with a marginal rate that can not be determined.arrow_forward6. Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy's built-in stability? In a phrase, “net tax revenues vary directly with GDP." When GDP is rising so are tax collections, both income taxes and sales taxes. At the same time, government payouts-transfer payments such as unemployment compensation, and welfare-are ( increasing, decreasing). Since net taxes are taxes less transfer payments, net taxes definitely (rise, fall) with GDP, which dampens the rise in GDP. (Note: Net Taxes = Taxes – Transfer Payments) On the other hand, when GDP drops in a recession, tax collections slow down or actually diminish while transfer payments ( rise, fall ) quickly. Thus, net taxes ( increase, decrease ) along with GDP drops, which softens the decline in GDP. A ( progressive, proportional, regressive ) tax system would have the most stabilizing effect of the three tax systems and the…arrow_forward
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