Question

6a)Government outlays may be financed through ________ and _________.

taxation; transfers

borrowing; transfers

taxation; borrowing

spending; transfers

b)

Which of the following is an example of a government transfer payment?

Property taxes

Government purchases

Income taxes

Social Security benefits

c)Inventory investment includes all except an increase in which of the following?

The number of soccer balls in a sports goods store.

The quantity of cars being worked on in an assembly line

The number of desktop computers owned by an advertising firm

The stock of aluminum owned by a beer can producer

d)Government purchases include all except which of the following?

Disbursement of funds for disability payments

The hire of a contractor to conduct government business

Purchase of printer ink for a government office at the local leve

The salary of a cleaner at the White House

e)

Jacques is a Canadian citizen who works in New York. He has no family or interests in Canada and deposits his salary in an American bank. The value of Jacques’ salary _______ included in national income and _______ included in domestic income.

is; is

is not; is

is; is not

Answer 1

Part a) Government outlays may be financed through taxation and borrowing. The government can either raise tax rates to finance its expenditure, or it can raise money from the financial markets by selling its bonds to raise the required amount of money.

Part b) Government transfer payments include Social Security Benefits. Property tax and income tax are the ways through which the government raises revenue from the public. On the other hand, government purchase is not a transfer payment as transfer payment involves re-distribution of income.

Part c) Inventory investment does not include the number of desktop computers owned by an advertising firm. This is because inventory investment is done by producers in the form of holding finished good, intermediate goods, and work in progress in order to deal with fluctuations in demand condition. Holding soccer balls by sports good store, quantity of cars being worked on in an assembly line and holding a stock of aluminum owned by a beer can producer, are examples of inventory investment. On the other hand, advertising firm has nothing to do with producing desktop computers.

Part d) Government purchases does not include disbursement of funds for disability payments. This is because government purchases include transactions that involves purchase of goods and services by the government and not transfer payments.

Part e) The value of Jacques’ salary is not included in national income and is included in domestic income. The income is not included in national income as Jacques is not a citizen of the US. However, since the income is being received in the US, so it will be included in the domestic income of the US.