Western Illinois University



Westerhold Name: _________________________________

Econ 432

HW#1: Size of Government—Due Wednesday, June 9th. (Problems taken from Rosen-Gayer textbook).

1. In 1996, President Clinton declared that the “era of big government is over”. Has the size of government fallen since then based on the following information:

a. In 1996, federal government spending was $1.56 trillion and Gross Domestic Product (GDP) was $7.82 trillion. In 2007, federal spending was $2.73 trillion and GDP was $13.76 trillion. During this period, prices increased by about 34%.

b. What additional data would you seek to provide a more complete answer to this question? Be specific in your answers and describe how the additional information might your analysis.

2. From 1981 to 1985, the US federal government increased defense spending from $153.9 billion to $245.1 billion per year. Over the same period, GDP rose from $3.128 trillion to $4.220 trillion. From 2001 to 2005, US federal defense spending increases from $290.3 billion to $474.2 billion and GDP rose from $10.128 trillion to $12.479 trillion. Which increase in defense spending (1981 to 1985 or 2001 to 2005) was larger relative to GDP?

The following table shows the composition of US federal expenditures in 2001 and 2005. Between 2001 and 2005, GEP went from $10.128 trillion to $13.1947 trillion. The GDP price deflator went from 102.300 to 113.000, and the population increased from 285.454 million to 296.940 million.

3.

|Federal Expenditures ($ billions) |

| |2001 |2005 |

|Defense |321.3 |529.9 |

|Health |172.3 |250.6 |

|Medicare |217.4 |298.6 |

|Income Security |269.8 |345.8 |

|Social Security |433.0 |523.3 |

|Net Interest |206.2 |184.0 |

|Other |243.4 |339.9 |

|Total |1863.4 |2472.1 |

A. Calculate the absolute change in federal expenditures between 2001 and 2005

B. Calculate the change in federal expenditures in real, inflation-adjusted, terms.

C. Calculate the change in real government expenditures per capita.

D. Calculate the change in government expenditures per GDP.

4. The following table shows the composition of US federal tax revenues in 2001 and 2005.

|Federal Taxes ($ billions) |

| |2001 |2005 |

|Individual income tax |994.3 |927.2 |

|Corporate tax |151.1 |278.3 |

|Social insurance |694.0 |794.1 |

|Excise tax |152.0 |154.2 |

|Total |1991.4 |2153.8 |

A. Calculate the absolute change in federal tax revenues

B. Calculate the change in federal tax revenues in real terms (inflation adjusted)

C. Calculate the change in real tax revenues per capita

D. Calculate the change in tax revenues per GDP

E. If any, which components of federal taxes had the largest relative increase from 2001 to 2005? If any, which had the largest relative decrease from 2001 to 2005?

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