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Liberty University ECON214 Problem Set 4 Complete Solutions Correct Answers Key

A complete Problem Set 4 solution for ECON214, providing step-by-step answers.

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    ECON 214 Liberty University ECON214 Problem Set 4 complete solutions correct answers key 1) Explain the difference between a budget deficit and the national debt. 2) Use the Marginal Income Tax Rates in Figure 15.6 (see p. 463) to compute the following: a. T ax due on taxable income of $100,000, $200,000, and $500,000 . b. A verage tax rate on taxable income of $100,000, $200,000, and $500,000 . 3) Greece, Ireland, Portugal, and Spain all went through national budget difficulties in recent years . U se the data below to answer questions regarding the sovereign debts of these national s (All data comes from the OECD and is in billions of current US dollars . ) . 2000 2010 Debt GDP Debt GDP Greece $138 $127 $455 $308 Ireland $ 34 $98 $ 124 $206 Portugal $62 $118 $ 203 $231 Spain $ 292 $586 $734 $1,420 a. C ompute the debt - to - GDP ratio for all four nations in both 2000 and 2010 . 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 2010? Use your computations from above to justify your answer. 4) Explain the differences between typical demand side fiscal policy and supply side fiscal policy. For each of the following fiscal policy proposals , determine whether the primary focus is on aggreg ate 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. G overnment sponsored prizes for new scientific discovery . e. A n 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 5 50 2.5 - 500 0.5 300 0.2 1000

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