Question 1

Are there any situations in which running a budget deficit is justified? Explain.

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Question 2

During recessions, even with no changes in policy, the deficit tends to ______ because _____________.

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Question 3

Why might reforms to encourage saving lead to a less egalitarian society?

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Question 4

Suppose that a country has an inflation rate of about 3 percent per year and a real GDP growth rate of about 3 percent per year. How large of a deficit can the government run (as a percentage of GDP) without raising the debt- to-income ratio?

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Question 5

Provide an example of how current expenditures might benefit future generations.

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Question 6

What is the benefit of a high saving rate?

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Question 7

In addition to the tax code, other policies reduce the incentives for people to save Provide an example.

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Question 8

Suppose a country has a real growth rate of 3%. Government spending is 75 billion units of currency and its tax revenues are 60 billion units of currency. The current national debt is 300 billion units of currency. At what inflation rate will its debt-to-income ratio remain unchanged?

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Question 9

Suppose a 25-year-old worker purchases a $5,000 bond that pays 6% interest per year which she plans to withdraw when she retires in 40 years. How much will the $5,000 accumulate to in 40 years? If the worker faces a marginal tax rate of 30% on interest income, how much will the $5,000 accumulate to in 40 years?

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Question 10

A higher return on saving the amount a household needs to save to achieve any target level of future consumption. This effect on saving is called the effect. If the income effect is large enough, then a reduction in taxes on saving might tax revenues.

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Question 11

Explain what is meant by saying that capital income is taxed twice.

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Question 12

Suppose tax policies are changed to encourage saving. Explain how the income effect and substitution effect influence the amount saved.

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Quiz 36: Six Debates Over Macroeconomic Policy