Question

The largest share of expenditures by state and local governments is for

purchases of goods and services.

national defense.

transfer payments.

interest payments.

law enforcement.

2.

Suppose a government has $4,000 billion of debt. This year, real GDP is $8,000 billion, the tax rate is 30 percent, and government spending is $2,000 billion. Which of the following is true?

The deficit will decrease by $400 billion.

The debt will increase by $400 billion.

The deficit will increase by $400 billion.

The debt will decrease by $400 billion.

Both the deficit and the debt will increase by $400 billion.

Answer 1

The largest share of expenditure by state and local government is for transfer payment. Ans: transfer payment.

Because in the data published by it is clear that most share of expenditure goes to social security like pension , unemployment benefits and other transfer payment of social benefit. The share of this expenditure is almost 33% as of budget data 2017. The share health expenditure along with Medicare and insurance is 28%. So most of the expenditure goes to transfer payment.

Question.2. Government Debt: $4000 billion, Real GDP is $8000 billion and tax rate is 30%. Government spending is $2000 billion.

In this case Government tax revenue will be 8000*0.30 = $2400 billion. Government spending is $2000 billion. So Government will have $400 billion in surplus. As a result of this there will decrease the debt by $400 billion. So answer is The debt will decrease by $400 billion.