Suppose the federal government’s revenue and expenditure accounts in this fiscal

ID: 2667068 • Letter: S

Question

Suppose the federal government’s revenue and expenditure accounts in this fiscal year display the amounts shown below (each item in billions of U.S. dollars):

Social security benefits $400 Social insurance taxes
Individual income tax collections 850 and contributions 600
National defense 275 International affairs 20
Net interest payments on the federal debt 250 Corporate income taxes 200
Miscellaneous revenue sources 160 Health care and Medicare 350
Income security programs 260 Miscellaneous expenditures 220

What were the government’s total revenues and expenditures in this most recent year? Was the budget in surplus or in deficit? All other factors held constant, what are some of the possible effects of this year’s government budget position on the economy’s level of income and interest rates? Explain your reasoning.

Explanation / Answer

Calculation of total revenues for federal government:

Total revenues:

Social security benefits

400

Individual income taxes

850

Contribution

600

National defense

275

International affairs

Miscellaneous revenue sources

160

Total revenues

2305

Calculation of total expenditure for federal government:

Total expenditures:

Net interest payments

250

Corporate taxes

200

Health care and Medicare

350

Income security programs

260

Miscellaneous expenditures

220

Total expenditures

1280

The budget was surplus because the federal government has more revenues than the expenditures.

The budget had net income for the federal government. It is has positive effect on economy level’s income because of the increased revenue will contribute the more GDP to that government. If the government has more revenue obviously the interest charges will be declined.