1. Suppose that the government was forecast to spend $3 trillion this year and take in $2.5 trillion in revenues. Suppose one politician argued for selling enough federally owned land in the West to bring in $0.5 trillion in revenue. If this proposal were to pass, describe the effect it would have on the budget in terms of both cash accounting and capital accounting.

3 QUESTIONS

1. Suppose that the government was forecast to spend $3 trillion this year and take in $2.5 trillion in revenues. Suppose one politician argued for selling enough federally owned land in the West to bring in $0.5 trillion in revenue. If this proposal were to pass, describe the effect it would have on the budget in terms of both cash accounting and capital accounting.

2. Some have argued in favor of reducing taxes on repatriated earnings that companies operating in the United States have made in other countries. Such a tax break could lead to a sharp increase in the amount of repatriated earnings and raise tax revenues. If such an increase were temporary, what would be the effect on the real budget deficit for the current year? What would be the effect on the structural deficit? Explain.

3. Suppose your town wishes to build a dam to protect itself from the risk of flooding. Despite the fact that each family in the town is willing and able to pay up to $200 to have the dam built and it will cost only $150 per family, a voluntary contribution campaign is unable to raise enough funds to build the dam. Why? What type of problem is this, and what solution would you recommend?

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