Do they show a distinct trend?) Write a brief descriptive note on the changing importance of different revenue sources.

Problem 1. For the post-World War II period, plot U.S. Federal government revenues and state and local revenues as a share of GDP. Compare to Fig¬ure 13.5. How have the level and composition of taxes in the U.S. economy changed during this period?

Problem 2. For the post-World War II period, plot U.S. Federal government expenditure. total state and local expenditure, and each of the categories of state and local expenditure (on goods and services, on transfer payments. and on interest) as shares of GDP. Write a brief essay commenting on any changes in the economic role of the Federal versus the state and local governments suggested by these data.

Are state and local fiscal actions stabilizing or destabilizing? To investigate, plot quarterly state and local expenditures and revenue as shares of potential GDP. indicating the NBER recession dates with shading. Write a brief note summarizing the evidence about the stabilizing or destabilizing effects of state and local fiscal actions.

Problem 3. How might a strict balanced-budget amendment to the U.S. Con-stitution affect the actions of the automatic stabilizers in the economy?

Problem 4. In 2010. the Social Security payroll tax in the United States was 6.20 percent on income up to $106,800 and zero thereafter; the Medicare pay-roll tax was 1.45 percent on income with no limit. Make two (quantitatively accurate graphs): one of the payroll tax function and one showing the marginal and average tax rates. Are the combined payroll taxes progressive, regressive, or neutral? ol---)W-TI3,11 1 High deficits are sometimes blamed for high real interest rates.

(a) Explain why.

(b) Plot the U.S. Federal government budget deficit (scaled by potential out-put) and the ex post real interest rate (10-year government bond rate less the inflation rate calculated as p₁ = p_i+1/p_i - 1). Do the data appear to be stationary? Does your graph suggest either a short-term or a long-term connection between the two series?

(c) If the two time series in (b) appear to be stationary, make a scatterplot of the real interest rate (vertical axis) against the scaled deficit (horizon-tal axis); add a regression line, displaying the equation and R2. If they do not appear stationary. then make this graph and an additional graph in which the two series are transformed by taking differences. Again, add a regression line, displaying the equation and R².

(d) Write a brief note summarizing the evidence in your graphs for and against deficits causing high real interest rates. (Be as specific and quantitative as possible.) How compelling is the evidence? What pitfalls might you face in drawing such inferences?