What, if any, is the impact of the CPI bias on government spending and taxes?
What will be an ideal response?
About one third of government outlays, such as Social Security, are linked to the CPI so that these sources of government spending increase when the CPI increases. Because the CPI overstates the actual inflation rate, government spending increases by more than is warranted by inflation. Hence the CPI bias increases the amount of government outlays.
Additionally, taxes revenue is linked to the CPI because the CPI is used to adjust the income levels at which higher tax rates apply. Because the CPI overstates the actual inflation rate, the income levels are adjusted so they are higher than is appropriate. As a result, the government's tax revenue is lower than otherwise.
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Describe how the market demand curve for private goods is developed. Describe how the societal demand curve for public goods is developed. Explain why each curve is developed the way it is
What will be an ideal response?
Refer to Table 20-6. Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to
A) 1.2 percent. B) 2.0 percent. C) 2.5 percent. D) 4.0 percent.
Monetarists are in favor of
a. inflation targeting. b. interest rate targeting. c. output targeting. d. nominal income targeting. e. money growth targeting.
A requirement that the budget be balanced each and every year would prevent automatic stabilizers from working and would __________________ the severity of economic fluctuations.
a. worsen b. lessen c. prolong d. improve