Most state governments in the United States operate under constitutional provisions that severely restrict expenditures financed by borrowing
Suppose this were to change, so that state governments' access to credit markets was no different from the federal government. What consequences would you predict for the nation's aggregate debt burden?
The aggregate debt burden would probably increase, but not by much, and would be distributed more efficiently. The discipline of credit markets (cost of borrowing) would encourage all state governments to borrow and spend wisely. This discipline is lacking with federal grants in aid, and somewhat lacking for the U.S. Treasury, because of the presumed zero risk of default. Decentralization of entitlement spending would allow streamlining of the federal budget and reduced federal borrowing.
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Suppose the cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:
A. drink a third glass of soda. B. drink a third glass of soda if the benefit of doing so is positive. C. not drink a third glass of soda. D. drink a third glass of soda if his benefit from drinking his second glass of soda was positive.
If the interest rate increases, the
a. cost of saving will increase b. cost of borrowing will increase c. firm should decrease the amount of capital it owns by selling capital d. firm should acquire more capital e. supply of loanable funds will increase
For an intertemporal budget constraint concerning saving for retirement, the choice is between past and future___________________.
a. salary b. consumption c. health d. working units
One criticism of the corporate income tax is that
A. it is so complex to administer that corporate income taxes are rarely collected by the Internal Revenue Service. B. it is too regressive. C. a portion of the corporations' tax burden is passed on to consumers via higher prices for goods and services and to workers via lower wages. D. it is too flat.