The state government collects $405 billion in tax revenue during the current fiscal year and is...

The state government collects $405 billion in tax revenue during the current fiscal year and is running a cash flow surplus. Which of the following is true?

	a.	Government spending is greater than or equal to $405 billion.
	b.	The national debt is less than $405 billion.
	c.	The government will cut taxes because it is running a surplus.
	d.	Government spending is less than $405 billion.

A government payment to an individual or firm that lowers the cost of consumption or production, respectively, is referred to as which of the following?

	a.	Coasian compensation
	b.	subsidy
	c.	tax
	d.	free rider problem

Solutions

Expert Solution

1) The government surplus happens when the revenue exceeds the expenditure. The surplus would be equal to

Surplus = Revenue – expenditure (spending)

So, when there is surplus, the correct answer is

d) Government spending is less than 405 billion

so, government spending is less than its revenue by 405 billion

Other options are not correct. Government spending is not greater, we can not say anything about national debt and tax policy with the given information.

2) When a government is paying to the individual or firm to lower the cost it is known as subsidy.

So, the correct answer is b) Subsidy

Coasian compensation is related to the compensation to one party because of the damage arising out of another party. Tax would increase the cost not decrease it. The free rider is an issue where many people are using the resource but not paying sufficiently.

jeff jeffy answered 2 years ago

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