chapter 12 Flashcards
Federal debt
total amount the state owes
federal deficit
spending minus taxes in a single year (when positive)
Why is the federal debt not equal to the net public debt?
Because the government owes itself money
- Why do we often discuss debt as a percentage of GDP?
Because in order to understand how big a debt is, it is important to compare it to the entire economy.
- True, false, explain: If a politician says, “My proposal would cut spending by $100 billion next year,” that means that under the proposal the government spending will be $100 billion less than in the current year.
False. It means that the politician proposes to spend $100 Billion less than the previously planned amount. Since previous plans may have been to increase spending my more than $100 billion, the new proposal may actually increase spending.
- If a politician says, “We will cut the debt by $1 trillion,” does that mean that under the plan, next year’s debt will be $1 trillion less than this year’s debt? Explain.
No. First, this is a cut in planned spending. Second, if no time period is given, the politician probably means “over a 10 year period.”
Static scoring
Static scoring forecasts spending and taxes, assuming that individuals do not change their behavior in response to policy changes.
- If Americans now spend $5 billion/year on diapers, how much will it likely cost if government decides to buy all diapers and give them to those who request them? Explain, assuming that the number of births per year stays constant.
It will likely cost more than $5 billion because consumers will use more diapers if they do not have to pay the marginal cost.
- The current year’s deficit is approximately how many dollars?
$1trillion
- How much does the U. S. government spend per day, in dollars?
About $10 Billion. ($370 Billion per year)
The net public debt, as a % of GDP, is
about 80%
Most of the increase in the deficit from 2007-2013 is due to
spending rising
What percentage of the federal budget do we currently spend on interest on the debt?
5%
For the purpose of paying Social Security Benefits, the relevant amount in the SSTF is
$0
A president that significantly reduced income tax rates was
Kennedy and REagan
The cigatette tax is
regressive
- True, false, explain: The national debt has increased greatly since 2007–about half of the increase coming from lower tax revenues and the other half coming from higher spending.
False. Yes, the national debt has greatly increased. But tax revenues rose by $150 billion and spending rose by about $1 trillion.
Give examples of recent proposals for tax increases and spending cuts, along with about how big the change is, in terms of the time it takes the government to spend the money.
Buffet rule-2 days. Oil and gas taxation changes/private jet tax changes–about 30 seconds. Bush tax cuts for the wealthy–8 days. The sequester cut–8 days. Republicans’ planned cuts–10 days. R negotiated cuts–3 days. Acutal cuts–34 seconds.
True, false, fully explain: Overall, government debt, as a percentage of GDP has been stable.
False. It rose greatly during WWII, fell until the early 80s, rose until the mid 90s, began to rise rapidly in 2008.
True, false, fully explain: Spending as a percentage of GDP has generally risen since the end of WWII.
Mostly true. Except for the 1990s, when it fell for a time.
True, false, explain: The largest share of the government’s budget has always been devoted to the military.
False. This was true for much of our history. But Social Security, Medicare,Medicaid, Unemployment, and other welfare programs now make up most of spending.
Which two factors delayed the demise of Social Security for a few decades?
The baby boom. The entry of women in the workforce.
- What is the combined unfunded long term debt of social security, medicare, and medicaid?
$110 Trillion
True, false, explain: The existence of Medicare and Medicaid makes health care more expensive, overall.
True. Consumers use more services when they pass the cost to others. In addition, government is not an efficient provider of insurance services.
