Chapter 12

Question 1

Deficit

Answer 1

When the state spends more than it receives in taxes in 1 year.

Question 2

Federal Debit

Answer 2

Total amount the state owes

Question 3

How does the state spend more than it taxes?

Answer 3

By selling government bonds to individuals, companies, and to other governments.

Question 4

What is the federal debt a total amount of?

Answer 4

Government bonds outstanding

Question 5

Net Public Debt

Answer 5

Portion of the debt that the US government owes to others, not to itself, is relevant amount that the state owes

Question 6

Does the government always have a spending plan before they pass an actual budget?

Answer 6

Yes.

Question 7

How long is the governments plan for spending, taxes, deficits, and debt?

Answer 7

10 years

Question 8

Congressional Budge Office (CBO)

Answer 8

Chief forecaster of how new taxes and spending will affect the budget

Question 9

CBO uses static scoring, which is?

Answer 9

Assuming that individuals will not change their behavior if taxation or spending changes.

Question 10

Dynamic Scoring

Answer 10

Looks at the effects of past changes on behavior to forecast the effects of new legislation

Question 11

Historically, when investment tax rates fall, investment tax revenue dollars often do what?

Answer 11

Rise dramatically, as the Gaffer Curve might predict

Question 12

How much was spending in 2007?

Answer 12

A little above $2.5 trillion

Question 13

Taxes rose by ____ between ‘07 and ‘14.

Answer 13

$430 billion per year

Question 14

Spending rose by how much between ‘07 and ‘14?

Answer 14

About $920 billion per year

Question 15

How much does the US currently spend per day?

Answer 15

$10 billion

Question 16

WWII gave the US a huge increase in what?

Answer 16

Net public debt

Question 17

After WWII GDP increased quicker than the New Public Debt, so the ratio fell.

Answer 17

Yeah

Question 18

Since GDP increased during a time, the ____ shrank.

Answer 18

%

Question 19

Why did the size of the debt compared to the economy shrink in ‘08?

Answer 19

Due to falling GDP and the $152 billion stimulus of ‘08.

Question 20

Currently, the net public debt as a % of GDP is about the same as in?

Answer 20

1950

Question 21

In the years since ‘08, the ratio increased quickly due to?

Answer 21

1. $778 billion stimulus package of ‘09
2. Building part of the stimulus into the “baseline” so that it became regular yearly spending and refusing to pass another budget for years, to avoid debating the issue
3. Tow 8% increases in ordinary spending in ‘09
4. TARP funds that were spent and not repaid
5. Various increases in spending, such as increasing unemployment insurance from a 26 week program to a 99 week program and new healthcare

Question 22

Historically, US government spending was how much of GDP?

Answer 22

1-2%

Question 23

The New Deal normalized the concept of socialized costs….

Answer 23

Spreading private costs to society in general, through taxation, with social security being the large social program from the era.

Question 24

Kennedy proposed Medicare and Medicaid in the early 1960’s and Lyndon Johnson did what?

Answer 24

Pushed them through congress

Question 25

Now, 60% is spent on....

Answer 25

60% on transfers such as social security, medicare, medicaid, unemployment insurance and other welfare programs

Question 26

Now, 20% is spent on....

Answer 26

National defense

Question 27

Now, 5% is spent on....

Answer 27

Interest on the debt

Question 28

Now, 15% is spent on...

Answer 28

Everything else, like roads, education, prison, etc.

Question 29

Why is the interest component of spending low at the moment?

Answer 29

The Fed has expanded the money supply so greatly in recent times, lowering rates to 1% and less.

Question 30

When inflation threatens and the Fed lowers the money supply, raising the rates toward 4%,

Answer 30

Interest component part of spending will rise drastically, causing a crisis.

Question 31

Why was the New Deal put off for decades?

Answer 31

1. The baby boom after WWII and | 2. The massive entry of women into the workforce

Question 32

Today, how much if social security retirement benefits?

Answer 32

$1,200 per retiree

Question 33

In 1950, 50 workers per retiree, averaging how much a person?

Answer 33

$24 per worker

Question 34

Today, 3 workers per retiree, averaging ___ per worker?

Answer 34

$400

Question 35

In 15 years, there will be 2 workers per retiree, averaging ___ per worker.

Answer 35

$600. A 50% increase in payment

Question 36

What is the first assumption of governmental accounting?

Answer 36

Benefits can be paid out of trust funds made up of government bonds (not of money)

Question 37

What is the 2nd assumption of government accounting?

Answer 37

Politicians make cuts to future benefits early in every year, which would result in less future spending- even though those lawmakers restore the benefit cuts at the end of every year, before future cuts can be made.

Question 38

What is the long term debt of the 3 programs estimated to be?

Answer 38

$220 trillion

Question 39

Except in times of war, where do revenues mainly come from?

Answer 39

Import tariffs

Question 40

When was the income tax amendment passed?

Answer 40

1913; and expanded nearly 80% of income during WWI, but only the very wealthy paid income taxes at first

Question 41

Under the leadership of Andrew Mellon, Treasury Secretary to Harding and Coolidge, what happen to taxes?

Answer 41

The fell continuously though the 1920s. eventually down to 24%

Question 42

What happened to taxes during the New Deal?

Answer 42

Tax rates tripled, then increased up to 90% during WWII and stayed there until Kennedy cut them to 70% in the mid-60s.

Question 43

Under Reagan, taxes....

Answer 43

Top rate fell to 50% in '82, then to 28% in '88.

Question 44

Clinton raised rates to?

Answer 44

40%

Question 45

Bush lowered rates to?

Answer 45

35%

Question 46

Obama raised taxes back to?

Answer 46

40%

Question 47

Static scoring

Answer 47

Assumes that people's behavior does not change when their incentives change

Question 48

Tax revenues rose during WWII and stabilized at about ___ of GDP.

Answer 48

17-18%

Question 49

Hauser's Law

Answer 49

The fact that no matter how high rates go, tax revenues stay in the 17-18% range. It implies that we cannot balance our spending problems with tax increases, above a certain point.

Question 50

How much is the US government currently spending?

Answer 50

25% of GDP, far above its taxes of 16% of GDP.

Question 51

Proportional Tax

Answer 51

The tax rate is the same at all income levels

Question 52

Progressive Tax

Answer 52

Tax rate rises as income rises

Question 53

Regressive Tax

Answer 53

Tax rate rises as income falls

Question 54

Since high income people pay a higher share of taxes than they have of income, the income tax is....

Answer 54

Progressive

Question 55

At low levels if income, the share of income exceeds...

Answer 55

The share of total federal taxes

Question 56

At high levels of income, the share of taxes...

Answer 56

Exceeds the share of inceom

Question 57

Top 20% pay tax rate of...

Answer 57

28.9%. The bottom 20% pay a rate of 1%

Question 58

If a government wants to improve the economy, it should advocate reforms in...

Answer 58

Spending, taxes, or deficits.

Question 59

With domestically finance government spending...

Answer 59

Resources are withdrawn from the economy immediately

Question 60

With foreign financed government spending...

Answer 60

Resources are withdrawn immediately from the foregone economy, so that crowding out affects the domestic economy later, when the bonds are paid off.

Question 61

With government spending financed by money creation...

Answer 61

In the long run there is no effect other than to create inflation and destabilize the economy as prices cease to reflect value.

Question 62

Friedman concluded that this destruction is so great that....

Answer 62

It is better to lower spending than to lower deficits. We should prefer plan 2.