REVIEW QUESTIONS

1. What are the major components of government out­lays? What are the major sources of government rev­enues? How does the composition of the Federal government's outlays and revenues differ from that of state and local governments?

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3. Who bears the burden of government debt? Explain why. Under what circumstances is there no burden to be borne?

4. What are the three main ways that fiscal policy affects the macroeconomy? Explain briefly how each channel of policy works.

5. Define automatic stabilizer and give an example. For proponents of antirecessionary fiscal policies, what advantage do automatic stabilizers have over other types of taxing and spending policies?

6. Give a numerical example that shows the difference between the average tax rate and the marginal tax rate on a person's income. For a constant before-tax real wage, which type of tax rate most directly affects how wealthy a person feels? Which type of tax rate affects the reward for working an extra hour?

7. How is real seignorage revenue related to inflation? How does the quantity of real seignorage revenue change as inflation rises from zero to a positive level, to still higher levels?

8. In what ways is the government debt a potential bur­den on future generations? What is the relationship between Ricardian equivalence and the idea that gov­ernment debt is a burden?

9. Discuss four reasons why the Ricardian equivalence proposition isn't likely to hold exactly.

10. Define inflation tax (also called seignorage). How does the government collect this tax, and who pays it? Can the government always increase its real revenues from the inflation tax by increasing money growth and inflation?

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