Equal increase in taxation

1. If an increase in government expenditures is financed by an equal increase in taxation, what impact will these actions have on the economy? If the same increase in government expenditures is financed by additional borrowing by the federal government, what will the impact be?
2. Indicate whether each of the following would be considered an automatic stabilizer (last part of lecture and pg. 544):
   a. The president encourages Congress to decrease taxes prior to an election.
   b. A higher level of jobless claims results in an increase in total disbursements of unemployment compensation.
   c. An expansion in the economy increases the average person’s income level, forcing some people into higher tax brackets.
   d. The US congress increases highway spending programs in order to benefit local businesses
3. If the marginal propensity to consume increases (lecture), what will happen to the expenditure multiplier? If the marginal propensity to save increases, what will happen to the expenditure multiplier?
4. If the average person spends $90 out of every $100 he or she earns, what does the multiplier equal (lecture)?
5. Explain the difference between the US debt and the US deficit.
6. If the economy is moving too slowly, which economic problem is more likely to exist-high unemployment or high inflation? In this situation, should the federal government increase taxes or decrease taxes? Should the federal government increase or decrease government spending? .
7. If my marginal propensity to save is .15, what is my marginal propensity to consume? What multiplier do these figures imply?
8. If the multiplier is 15 and the government increased government spending by $30 billion, holding all other factors constant, how much would real GDP increase? If the government decreased government spending by $30 billion, how much would real GDP decrease?
9. If unemployment is a significant problem, should the federal government take action that would increase or decrease the deficit? Explain.
10. Referring to the table at the end of the lecture, explain who pays the biggest share of taxes to the federal government (use % figures). Explain who pays the smallest share of taxes to the federal government (use % figures). Why is this fair or unfair?

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