CIA15-study-guide9-public-finance

Question 1

What is the role of countercyclical fiscal policy?

Answer 1

To stabilize the economy by cooling activity during expansions and reviving it during recessions.

Question 2

How can the government promote growth over the medium term?

Answer 2

By choosing certain tax and spending programs.

Question 3

What is a social safety net?

Answer 3

A publicly funded system to address severe inequities in income and wealth distribution.

Question 4

What are some measures to alleviate poverty?

Answer 4

• Tax and spending measures
• Public programs for the unemployed
• Economic growth initiatives

Question 5

How can government debt impact economic growth?

Answer 5

High debt levels can reduce growth by raising interest rates and crowding out private investment.

Question 6

What is an investment-friendly tax policy?

Answer 6

A tax policy characterized by moderate tax rates to encourage investment.

Question 7

Why do high corporate tax rates discourage investment?

Answer 7

They lower after-tax profits and income for investors.

Question 8

What can help make a revenue system more growth-enhancing?

Answer 8

• Keeping the overall tax burden moderate
• Relying more on consumption taxes
• Reducing payroll taxes

Question 9

What are the benefits of relying more on consumption taxes?

Answer 9

• Avoids double taxation on saving
• Encourages investment
• Shifts some tax burden onto visitors

Question 10

What types of government spending can promote economic growth?

Answer 10

• Education
• Infrastructure
• Health care
• Legal system
• Regulatory system

Question 11

What is the significance of education spending?

Answer 11

It supports a well-trained labor force critical for economic productivity.

Question 12

Why is infrastructure important for economic growth?

Answer 12

It enables firms and households to work effectively and efficiently.

Question 13

How does health care contribute to economic growth?

Answer 13

By ensuring a healthy population at a moderate cost.

Question 14

What role does a legal system play in economic growth?

Answer 14

It resolves disputes fairly and efficiently, enhancing investor confidence.

Question 15

What is the purpose of an effective regulatory system?

Answer 15

To increase confidence in the business climate and prevent excessive regulatory burdens.

Question 16

How can fiscal policy alleviate poverty and inequality?

Answer 16

By creating an efficient social safety net and implementing measures to reduce inequality.

Question 17

What is a minimum income for tax liability?

Answer 17

A threshold below which individuals are not required to pay personal income taxes.

Question 18

What are cash benefits in the tax system?

Answer 18

Payments made to low-income individuals through tax provisions, such as negative income taxes.

Question 19

What is the Earned Income Credit (EIC)?

Answer 19

A tax credit that provides cash transfers to low-income earners in the U.S.

Question 20

What are some expenditure measures to address poverty?

Answer 20

• Cash grants
• Subsidies for goods and services
• Employment subsidies
• Government job creation

Question 21

What is a cash transfer program?

Answer 21

A program providing cash grants to low-income families to meet basic needs.

Question 22

What is the purpose of specific goods and services subsidies?

Answer 22

To assist low-income families by making essential items more affordable.

Question 23

What are the drawbacks of unconditional cash transfers?

Answer 23

They may discourage work effort and can create dependency.

Question 24

What is a notable example of a cash transfer program in Brazil?

Answer 24

Bolsa Familia, which provides cash grants for school attendance and health care.

Question 25

How can subsidies be limited to low-income households?

Answer 25

By developing effective means to identify and screen out non-eligible households.

Question 26

What type of assistance do governments provide to low-income households?

Answer 26

Rent subsidies for qualifying housing units ## Footnote This assistance is limited by the amount of funding and qualifying housing units available.

Question 27

What is a key advantage of subsidies for specific goods and services compared to cash transfers?

Answer 27

Allows donor governments to determine which items are subsidized ## Footnote This can help avoid recipients using benefits for undesirable items, such as tobacco.

Question 28

What can be a negative consequence of specific subsidies on recipient spending patterns?

Answer 28

Recipients may have a less desired pattern of overall spending ## Footnote For example, they may spend more on food or housing than if they received cash.

Question 29

How do some governments encourage employment in the private sector?

Answer 29

By subsidizing jobs at private firms ## Footnote This subsidy is usually a percentage of the wages paid for new employees.

Question 30

Which countries provide grants to subsidize employment in the private sector?

Answer 30

Germany and Spain ## Footnote Several state governments in the United States also provide such grants.

Question 31

What is the Work Opportunity Tax Credit?

Answer 31

A tax credit for hiring new workers from specific population groups ## Footnote Includes disabled military veterans and youth from low-income neighborhoods.

Question 32

What are job creation subsidies often considered in terms of cost-effectiveness?

Answer 32

A costly way to expand employment ## Footnote Firms sometimes use subsidies to reduce wage costs of existing employees.

Question 33

What do government job creation programs aim to provide?

Answer 33

Income to unemployed workers ## Footnote They offer temporary jobs to encourage seeking regular employment in the private sector.

Question 34

What is a potential downside of government job creation programs?

Answer 34

They can be a relatively costly way to provide funds to low-income households ## Footnote Creating work projects incurs significant expenses.

Question 35

How can governments promote poor regions?

Answer 35

By providing additional spending for education, health facilities, and infrastructure ## Footnote This can stimulate investment and promote employment.

Question 36

What are two types of measures governments can use to address poverty and inequality?

Answer 36

Revenue measures and expenditure measures ## Footnote Revenue measures include taxes, while expenditure measures include subsidies and public services.

Question 37

What should fiscal policy focus on to promote growth and alleviate poverty?

Answer 37

Moderate tax burden and efficient spending on goods and services ## Footnote Focus should be on education, health care, legal services, and infrastructure.

Question 38

What are some options for alleviating poverty and unemployment?

Answer 38

Cash transfers, unemployment benefits, job creation subsidies, temporary public sector jobs ## Footnote These measures can also include targeted benefits for low-income households.

Question 39

What are some revenue measures to address inequality?

Answer 39

Expanded tax credits, higher taxes on the affluent, elimination of tax expenditures for high incomes ## Footnote Other measures include higher marginal tax rates and a possible national wealth tax.

Question 40

Fill in the blank: Governments can provide expanded _______ for child care to help low- and moderate-income households.

Answer 40

subsidies

Question 41

True or False: Government job creation programs typically pay wages above those available in the private sector.

Answer 41

False ## Footnote The most effective programs pay wages below private sector levels to encourage seeking regular employment.

Question 42

What is one potential program for young adults suggested to help with education or starting a business?

Answer 42

Financial endowments upon reaching age 18 or 21 ## Footnote This program could help fund education or business initiatives.