Liberty ECON 214 Problem Set #4 Answers Complete Solutions
Problem set #4
1) Explain the difference between a budget deficit and the national debt.
2) Use the Marginal Income Tax Rates in Figure 15.6 to compute the following:
a. tax due on taxable income of $150,000 and $300,000
b. average tax rate on taxable income of $150,000 and $300,000
3) Greece, Ireland, Portugal, and Spain all went through national budget difficulties in recent years, use the data below to answer questions regarding the sovereign debts of these nations (All data is in billions of current US dollars)
2008
2018
Debt
GDP
Debt
GDP
Greece
$ 138
$ 127
$ 502
$ 304
Ireland
$ 34
$ 98
$ 109
$ 200
Portugal
$ 62
$ 118
$ 200
$ 231
Spain
$ 292
$ 586
$ 700
$ 1,620
a. compute the debt-to-GDP ratio for all four nations for 2018
b. Compute the average yearly budget deficit for each of the nations over this period.
c. In your judgment, which of the four nations was in the worse fiscal shape in 2018? Use your computations from above to justify your answer.
4) For each of the following fiscal policy proposals, determine whether the primary focus is on aggregate demand or aggregate supply or both.
a. A $1000 per person tax reduction
b. a 5% reduction in all tax rates
c. Pell grants, which are government subsidies for college education
d. government sponsored prizes for new scientific discovery
e. an increase in unemployment compensation
5) Fill in the blanks in the table below. Assume that the MPC is constant over everyone in the economy.
MPC
Spending multiplier
Change in Government Spending
Change in Income
10
50
2.5
-800
0.5
425
0.2
1200
