Question 1

Why may a budget deficit be considered undesirable?

Accepted Answer

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Question 2

The austerity measures imposed on Greece in 2011:

Accepted Answer

The austerity measures imposed on Greece in 2011 were intended to address the country's large public sector and reduce its debt in an attempt to avoid default. These measures required significant reforms to reduce government spending and increase revenue, such as pension cuts, tax increases, and reductions in public sector salaries. The measures were not voluntary and were imposed by the European Union and International Monetary Fund as a condition of providing financial assistance to Greece.

Question 3

Why is foreign government ownership of U.S.debt not currently a huge concern among many economists?

Accepted Answer

Foreign ownership of U.S. debt is not currently a huge concern among many economists because the amount of debt held by foreigners is substantially less than the money the United States owes itself. Therefore, the United States has more control over its own debt and is less susceptible to foreign influence.

Question 4

Why was the world so concerned about Greece defaulting on its debt?

Accepted Answer

Countries in the European Union held a large quantity of Greek debt, so there was a concern that a Greek default would cause other European countries to default. The interconnectedness of the economies and financial systems in the European Union meant that a Greek default would have a cascading effect on other member states and could potentially lead to a larger financial crisis.

Question 5

Why is means-testing not likely to be a long-term solution for the rising costs associated with Medicare and Social Security benefits? Fully explain your answer.

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Question 6

Which country holds the most U.S.debt?

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...

Question 7

What would happen if a country defaulted on its sovereign debt?

Accepted Answer

If a country defaults on its sovereign debt, it would lead to a deep recession as it would affect the economy and the government's ability to access credit markets. This could have spillover effects on other countries as well.

Question 8

Prior to the 1980s,the top marginal tax rates in the United States were very high (i.e.,greater than 70% during the Great Depression and afterward).Why is it unlikely that tax rates will ever reach that level again?

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Question 9

Why may a budget surplus be considered undesirable?

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Question 10

One commonly proposed solution to the growing spending challenges faced by Social Security and Medicare is to increase payroll taxes.What are some potential downfalls associated with this solution? Explain.

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Question 11

Why is it important to distinguish between deficits and debt?

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Question 12

Which country faces the most severe fiscal challenges-in terms of debt-to-GDP ratio-according to the accompanying table?

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Question 13

The number of workers per retiree is a common feature in discussions of how to improve the sustainability of the Social Security program.What was the approximate number of workers per retiree when Social Security was first instituted? What is that number today? Discuss the challenges this poses for the federal government budget.

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Question 14

What are the advantages and disadvantages of indexing Social Security benefits to the consumer price index (CPI) rather than to the average wage index?

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Question 15

Why has "entitlement reform" become such a major national issue?

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Question 16

Use the following table to answer the next eight questions:
 
-According to the table,which country appeared to be in the best fiscal shape in 2012?

Accepted Answer

Australia had the highest surplus as a percentage of GDP in 2012, indicating a favorable fiscal situation.

Question 17

In recent years,the growth in foreign-owned debt has:

Accepted Answer

The growth in foreign-owned debt has helped the U.S. economy by keeping the supply of loanable funds higher than it would be otherwise. This is because when foreign investors buy U.S. Treasury bonds or other forms of debt, they are effectively supplying loanable funds to the U.S. economy. This helps to keep interest rates lower than they would be otherwise, which makes it easier for American businesses and consumers to borrow money and invest in new projects.

Question 18

How is it possible for some people to pay "negative" taxes?

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Question 19

Why are marginal tax rates the most relevant to consider when making financial decisions?

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Question 20

Suppose you are hired by the Federal Reserve Bank of Chicago as a financial analyst and your starting salary is $75,000.Use the following table to calculate your total income tax burden.Show your work.

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Quiz 15: Federal Budgets: the Tools of Fiscal Policy