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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The figure above shows the production possibilities frontier for a country. A combination of 4 million gallons of milk and 4 million gallons of ice cream is
A) unattainable and production efficient. B) attainable and production efficient. C) unattainable. D) attainable and production inefficient. E) More information is needed to determine if the point is attainable or not.
Were it not for the law of diminishing marginal returns, we could grow the world's food supply from a flowerpot
Indicate whether the statement is true or false