1) Explain the difference between a budget deficit and the national debt.

The term budget deficit is a lack in profits for a specific year's financial plan. On the other hand, national debt is the total of ALL accrued and unpaid insufficiencies.

2) Use the Marginal Income Tax Rates in Figure 15.6 (see p. 463) to compute the following:

a. Tax due on taxable income of $100,000, $200,000, and $500,000.

$8,700*10%= $870.00

($35,350-$8,700)*15%= $3997.50

($85,650-$35,350)*25%= $12575.00

($100,000-$85,650)*28%=$4018.00

Tax on $100,000 ($870+$3997.50+$12575+$4018) = $21,460.50

$8,700*10%= $870.00

($35,350-$8,700)*15%= $3997.50

($85,650-$35,350)*25%= $12575.00

($178,650-$85,650)*28%=$26040.00

($200,000-$178,650)*33%= $7045.50

Tax on $200,000 ($870+$3997.50+$12575+$26040+$7045.50) = $50,528.00

$8,700*10%= $870.00

($35,350-$8,700)*15%= $3997.50

($85,650-$35,350)*25%= $12575.00

($178,650-$85,650)*28%=$26040.00

($388,350-$178,650)*33%= $69201.00

($500,000-$388,350)*35%= $39077.50

Tax on $500,000 ($870+$3997.50+$12575+$26040+$69201+$39077.50) = $151,761

b. Average tax rate on taxable income of $100,000, $200,000, and $500,000.

$21,460.50/$100,000=0.214605=21.5%

$50,528.00/$200,000= 0.25264 = 25.3%

$151,761.00/$500,000= 0.303522 = 30.4%

3) Greece, Ireland, Portugal, and Spain all went through national budget difficulties in recentyears. Use the data below to answer questions regarding the sovereign debts of these nationals (All data comes from the OECD and is in billions of current US dollars.).

a. Compute the debt-to-GDP ratio for all four nations in both 2000 and 2010.

Greece 2000: $138/$127=1.09                  Greece 2010: $488/$308=1.58

Ireland 2000: $34/$98=0.35                      Ireland 2010: $104/$206=0.50

Portugal 2000: $62/$118=0.53                 Portugal 2010: $190/$231=0.82

Spain 2000: $292/$586=0.50                    Spain 2010: $700/$1,420=0.49

b. Compute the average yearly budget deficit for each of the nations over this period.

Greece 2000: $138-127 = 11; 2010: $488-$308 = 180

11+180/2 = 95.5 Yearly budget deficit

Ireland 2000: $34-98 = -64; Ireland 2010: $104-$206 = -102

-64 + -102/2 = -83 Yearly budget deficit

Portugal 2000: $62-$118 = -56; Portugal 2010: $190-$231 = -41

-56+-41 = -97

Spain 2000: $292-$586 =  -294; Spain 2010: $700-1420 = -720

-294 + -720/2 = -507

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.

Greece had the worst fiscal shape in 2010, as the debt-to-GDP was the highest jump (1.48-1.09) at 0.39. In addition, the average yearly budget deficitwas the highest for Greece at 79. 

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 aggregate demand or aggregate supply or both.

Demand-side fiscal policy encompasses the routine of administration expenditures and taxes to transfer comprehensive demand. On the other hand, supply-side fiscal policy includes the practice of government expenditures and taxes to influence the production portion of the economy.

a. A $1000 per person tax reduction.Aggregate demand

b. A 5% reduction in all tax rates.Both aggregate supply and demand

c. Pell grants, which are government subsidies for college education.Aggregate supply

d. Government sponsored prizes for new scientific discovery.Aggregate supply

e. An increase in unemployment compensation.Both Aggregate demand and supply

5) Fill in the blanks in the table below. Assume that the MPC is constant over everyone in the economy.