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ECON 213 Problem Set 4 A++ 3
\$ 15.00

1)

Explain the difference between a budget deficit and the national debt.

Budget deficit is a budget for one year and national debt is the total of all debts

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.

0.28*100,000

+ 0.33 * 200,000

+ 0.35 * 500,000

= 269,000

b.

Average tax rate on taxable income of \$100,000, \$200,000, and \$500,000.

100,000 = 28%

200,000 = 33%

500,000= 35%

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.

DEBT TO GDP

2000

2010

Greece

1.09

1.48

Ireland

0.35

0.60

Portugal

0.53

0.88

Spain

0.50

0.52

ECON 214

b.

Compute the average yearly budget deficit for each of the nations over this period.

Country

Average Deficit

Greece

297

Ireland

79

Portugal

132

Spain

531

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. Greece is the worse fiscal shape in 2010.

Greece’s debt to gdp jumped from 1.09 to 1.48

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.

The difference between typical demand side fiscal policy and supply side fiscal policy is

demand side fiscal policy

is government trying to intervene to shift aggregate demand whetver

on unemployment or inflation. Supply side fiscal policy is intended to help business to solve

inflation and unemployment

a.

A \$1000 per person tax reduction. - demand side fiscal policy

b.

A 5% reduction in all tax rates. - both

c.

Pell grants, which are government subsidies for college education. - demand side fiscal

policy

d.

Government sponsored prizes for new scientific discovery.-

Supply side fiscal policy

e.

An increase in unemployment compensation -. demand side fiscal policy

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

0.4

5

50

10

2.5

-500

0.5

2

300

150

0.2

1.25

200

1000

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