3.4 Review And Practice - savingstudentsmoney.org

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Figure 12.3 Government Spending as a Percentage of GDP, 1960–2009 This chart shows three major categories of government spending as percentages of GDP: government purchases, transfer payments, and net interest. Source: Bureau of Economic Analysis, NIPA Table 1.1 and 3.1 (November 23, 2010 revision). Taxes Taxes affect the relationship between real GDP and personal disposable income; they therefore affect consumption. They also influence investment decisions. Taxes imposed on firms affect the profitability of investment decisions and therefore affect the levels of investment firms will choose. Payroll taxes imposed on firms affect the costs of hiring workers; they therefore have an impact on employment and on the real wages earned by workers. The bulk of federal receipts come from the personal income tax and from payroll taxes. State and local tax receipts are dominated by property taxes and sales taxes. The federal government, as well as state and local governments, also collects taxes imposed on business firms, such as taxes on corporate profits. Figure 12.4 "The Composition of Federal, State, and Local Revenues" shows the composition of federal, state, and local receipts in a recent year. Figure 12.4 The Composition of Federal, State, and Local Revenues Federal receipts come primarily from payroll taxes and from personal taxes such as the personal income tax. State and local tax receipts come from a variety of sources; the most important are property taxes, sales taxes, income taxes, and grants from the federal government. Revenue shares are for 2009. Source: Bureau of Economic Analysis, NIPA Table 3.2 and 3.3 (November 23, 2010 revision).
The Government Budget Balance The government’s budget balance is the difference between the government’s revenues and its expenditures. A budget surplus occurs if government revenues exceed expenditures. A budget deficit occurs if government expenditures exceed revenues. The minus sign is often omitted when reporting a deficit. If the budget surplus equals zero, we say the government has a balanced budget. Figure 12.5 "Government Revenue and Expenditure as a Percentage of GDP, 1960–2009" compares federal, state, and local government revenues to expenditures relative to GDP since 1960. The government’s budget was generally in surplus in the 1960s, then mostly in deficit since, except for a brief period between 1998 and 2001. Bear in mind that these data are for all levels of government. Figure 12.5 Government Revenue and Expenditure as a Percentage of GDP, 1960–2009 The government’s budget was generally in surplus in the 1960s, then mostly in deficit since, except for a brief period between 1998 and 2001. Source: Bureau of Economic Analysis, NIPA Table 1.1 and 3.1 (November 23, 2010 revision). The administration of Ge<strong>org</strong>e W. Bush saw a large increase in the federal deficit. In part, this is the result of the government’s response to the terrorist attacks in 2001. It also results, however, from large increases in federal spending at all levels together with tax cuts in 2001, 2002, and 2003. The federal deficit is projected to be even larger during the administration of Barack Obama. The National Debt The national debt is the sum of all past federal deficits, minus any surpluses. Figure 12.6 "The National Debt and the Economy, 1929–2009" shows the national debt as a percentage of GDP. It suggests that, relative to the level of economic activity, the debt is well below the levels reached during World War II. The ratio of debt to GDP rose from 1981 to 1996 and fell in the last years of the 20th century; it began rising again in 2002.
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This content is copyright Flat Worl
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The Economics of Poverty The Econom
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Carlos Aguilar El Paso Community Co
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the opportunity to be active learne
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One person’s use of gravity is no
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Case in Point: The Rising Cost of E
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Opportunity Costs Are Important If
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as well as the ranking for each of
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TRY IT! The Department of Agricultu
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assumed conditions that are simpler
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Case in Point: Does Baldness Cause
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PROBLEMS 1. Why does the fact that
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for the production of goods and ser
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TRY IT! Explain whether each of the
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USA Today, August 30, 2001, p. 1B;
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Figure 2.3 The Slope of a Productio
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the firm were to produce 100 snowbo
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At point A, the economy was produci
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Points on the production possibilit
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ANSWER TO TRY IT! PROBLEM The produ
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An increase in the physical quantit
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Resources society could have used t
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e that higher incomes lead nations
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has increased the welfare of people
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CONCEPT PROBLEMS 1. How does a coll
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producing bowling balls? Bicycles?
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and a lower price tends to increase
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Just as demand can increase, it can
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Heads Up! Figure 3.5 It is crucial
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ANSWER TO TRY IT! PROBLEM Since goi
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Figure 3.9 An Increase in Supply If
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Heads Up! There are two special thi
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“The chickens didn’t stop layin
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Figure 3.15 A Surplus in the Market
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An Increase in Demand An increase i
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Figure 3.19 Simultaneous Decreases
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Figure 3.21 The Circular Flow of Ec
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Case in Point: Demand, Supply, and
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CONCEPT PROBLEMS 1. What do you thi
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NUMERICAL PROBLEMS Problems 1-5 are
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In the third section of the chapter
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Figure 4.2 The Increasing Demand fo
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The intersection of the demand and
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Case in Point: 9/11 and the Stock M
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The Great Depression of the 1930s l
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120. These distortions have grown o
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ANSWER TO TRY IT! PROBLEM A minimum
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Figure 4.16 Total Spending for Phys
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were explicitly stated, political p
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CONCEPT PROBLEMS 1. Like personal c
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A good deal of the economy’s mome
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At time t 1 in , an expansion ends
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Case in Point: The Art of Predictin
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Concern about changes in the price
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epay their loans. Deflation was com
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of each component of consumption sp
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Sources of Bias 1997 Estimate 2006
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ANSWER TO TRY IT! PROBLEM Rearrangi
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employment. It is sometimes referre
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KEY TAKEAWAYS People who are not wo
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ANSWER TO TRY IT! PROBLEM In Year 1
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NUMERICAL PROBLEMS 1. Plot the quar
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The primary measure of the ups and
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By recording additions to inventori
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Figure 6.5 Spending in the Circular
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TRY IT! Here is a two-part exercise
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ANSWER TO TRY IT! PROBLEM 1. GDP eq
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generated in the production of thos
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Case in Point: The GDP-GDI Gap Figu
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that productivity has increased gre
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Figure 6.9 Comparing Per Capita Rea
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ANSWER TO TRY IT! PROBLEM 1. Real G
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NUMERICAL PROBLEMS 1. Given the fol
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LEARNING OBJECTIVES 1. Define poten
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Figure 7.2 Changes in Aggregate Dem
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Equation 7.1 We use the capital Gre
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7.2 Aggregate Demand and Aggregate
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The Short Run Analysis of the macro
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Finally, minimum wage laws prevent
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Figure 7.10 An Increase in Governme
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ANSWER TO TRY IT! PROBLEM All compo
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Now suppose aggregate demand increa
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price level of P 3 . For both kinds
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Case in Point: Survey of Economists
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CONCEPT PROBLEMS 1. Explain how the
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Aggregate Quantity of Goods and Ser
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2. We define growth in terms of the
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Figure 8.3 Differences in Growth Ra
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Case in Point: Presidents and Econo
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Figure 8.6 The Aggregate Production
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Figure 8.9 Increase in the Supply o
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ANSWER TO TRY IT! PROBLEM The produ
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In general, countries with accelera
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ANSWER TO TRY IT! PROBLEM Situation
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NUMERICAL PROBLEMS 1. The populatio
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not get eaten. Prisoners knew other
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circulation. Unless a means can be
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KEY TAKEAWAYS Money is anything tha
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LEARNING OBJECTIVES 1. Explain what
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Acme Bank Assets Liabilities Reserv
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Figure 9.7 Notice that Bellville is
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per insured bank, for each account
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ANSWER TO TRY IT! PROBLEM 1. Acme B
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discount rate. Lowering the discoun
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Page 211 and 212: CONCEPT PROBLEMS 1. Airlines have
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Page 215 and 216: price. Buyers of bonds will seek th
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Page 219 and 220: Case in Point: Betting on a Plunge
Page 221 and 222: Of course, money is money. One cann
Page 223 and 224: The speculative demand for money is
Page 225 and 226: Equilibrium in the Market for Money
Page 227 and 228: The reduction in interest rates req
Page 229 and 230: Economic Perspectives 29 (First Qua
Page 231 and 232: NUMERICAL PROBLEMS 1. Compute the r
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Page 237 and 238: Figure 11.2 A Contractionary Moneta
Page 239 and 240: Case in Point: A Brief History of t
Page 241 and 242: Only after policy makers recognize
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Page 247 and 248: 11.3 Monetary Policy and the Equati
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Page 251 and 252: First, we do not expect a given per
Page 253 and 254: Summary Part of the Fed’s power s
Page 255 and 256: chosen. 11. Since August 1997, the
Page 257 and 258: . 1% c. 2% 7. Suppose the velocity
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Page 263 and 264: KEY TAKEAWAYS Over the last 50 year
Page 265 and 266: ANSWER TO TRY IT! PROBLEM A budget
Page 267 and 268: A reduction in government purchases
Page 269 and 270: Case in Point: Post-World War II Ex
Page 271 and 272: Our analysis of monetary policy sho
Page 273 and 274: Case in Point: Crowding Out in Cana
Page 275 and 276: NUMERICAL PROBLEMS 1. Look up the t
Page 277 and 278: LEARNING OBJECTIVES 1. Explain and
Page 279 and 280: Equation 13.3 The saving function r
Page 281 and 282: Other Determinants of Consumption T
Page 283 and 284: Case in Point: Consumption and the
Page 285 and 286: that firms did not intend to make.
Page 287 and 288: Equation 13.11 Equation 13.11 is th
Page 289 and 290: Figure 13.10 Adjusting to Equilibri
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Page 293 and 294: There are two major differences bet
Page 295 and 296: Case in Point: Fiscal Policy in the
Page 297 and 298: This is called the interest rate ef
Page 299 and 300: Case in Point: Predicting the Impac
Page 301 and 302: Summary This chapter presented the
Page 303 and 304: NUMERICAL PROBLEMS 1. Suppose the f
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Page 307 and 308: Figure 14.2 "Gross Private Domestic
Page 309 and 310: KEY TAKEAWAYS Investment adds to th
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We will see in this section that in
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Firms need capital to produce goods
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TRY IT! Show how the investment dem
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Figure 14.10 A Change in Investment
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Summary Investment is an addition t
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a. Draw the investment demand curve
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of the first meeting in Doha, Qatar
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Figure 15.2 U.S. Real GDP and Impor
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KEY TAKEAWAYS International trade a
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ANSWERS TO TRY IT! PROBLEMS 1. Mexi
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Equation 15.3 represents an extreme
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KEY TAKEAWAYS The balance of paymen
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ANSWERS TO TRY IT! PROBLEMS 1. All
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Countries that have a floating exch
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ecame fully adopted in 1999. Since
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Case in Point: The Euro Figure 15.1
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CONCEPT PROBLEMS 1. David Ricardo,
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a. If the exchange rate was free-fl
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The Phillips curve seemed to make g
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increases. The term, coined by Mass
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16.2 Explaining Inflation-Unemploym
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Figure 16.9 The Stagflation Phase I
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Case in Point: From the Challenging
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In the long run, real GDP moves to
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A worker’s reservation wage is li
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KEY TAKEAWAYS Two factors that can
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16.4 Review and Practice Summary Du
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NUMERICAL PROBLEMS 1. Here are annu
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The contraction in output that bega
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Figure 17.2 "Aggregate Demand and S
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Case in Point: Early Views on Stick
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The Kennedy administration also add
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changes in the money supply as the
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Two particularly controversial prop
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Case in Point: Tough Medicine Figur
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new direction damaged Mr. Carter po
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The sudden change in the relationsh
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Case in Point: Steering on a Diffic
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Summary We have surveyed the experi
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The United States is the richest la
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We have seen that the income distri
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were. The “intellectual wage gap
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Case in Point: Attitudes and Inequa
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Figure 18.4 Weighted Average Povert
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Figure 18.6 "The Demographics of Po
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Given a choice between cash and an
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Look at Figure 18.9 "Poor People an
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women having families, and reductio
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white men; in 2005, they were 75% o
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Case in Point: Early Intervention P
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CONCEPT PROBLEMS 1. Explain how ris
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for skilled workers and the market
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income countries in 2007. We should
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We can also see the results of poor
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HDI rank Country Human Development
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Case in Point: (Growth and Developm
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“At the end of each day, the worl
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Figure 19.7 Income Levels and Popul
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Case in Point: China Curtails Popul
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economic growth by making available
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notably Indonesia and Malaysia, the
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Summary Developing nations face a h
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The Economics of Karl Marx Marx is
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TRY IT! Briefly explain how each of
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crowded into the factory, are organ
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Although the Soviet Union was able
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Case in Point: Socialist Cartoons T
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The practical alternative to allowi
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Russia: An Uncertain Path to Reform
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TRY IT! Table 20.1 "Official Versus
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TRY IT! There is a shortage of cars
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Figure 21.1 Ski Club Revenues The s
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horizontal axis, measured between t
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As an example of a graph of a negat
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evenue curves unchanged. That is be
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LEARNING OBJECTIVES 1. Understand n
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Figure 21.14 Tangent Lines and the
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TRY IT! Consider the following curv
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the scaling of the vertical axis us
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Figure 21.22 Intended Academic Majo
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ANSWER TO TRY IT! Here are the time
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What do you think is the argument m
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Equation 22.14 The coefficient of r
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Figure 22.2 A Decrease in Autonomou
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NUMERICAL PROBLEMS 1. Suppose an ec
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