Chapter1Solutions

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1、SolutionsandActivitiestoCHAPTER1WHYSTUDYPUBLICFINANCE?QuestionsandProblems1.Manystateshavelanguageintheirconstitutionsthatrequiresthestatetoprovideforan“adequate”levelofeducationspending.Whatistheeconomicrationaleforsucharequirement?Therearetwoeconom

2、icrationalesforgovernmentprovisionofagoodorservice:mar-ketfailure,andredistribution.Amarketfailureargumentforstateprovisionofeducationwouldbethataneducatedpopulationbenefitssocietygenerally.Eachpersonwhoreceivesaneducationreceivesaprivatebenefitandal

3、soconfersapositiveexternalityonthecommu-nity.Intheabsenceofpublicprovisionofeducation,self-interestedpeoplewouldacquireless-than-optimallevelsofeducationbecausetheywouldnottakeintoaccountitsexternalbenefit.Publiceducationcorrectsthismarketfailure.Ana

4、rgumentcanalsobemadethatpubliceducationisredistributivebecauseitincreasesthehumancapitalofallstudentsre-gardlessoftheirindividualeconomicstatus.2.Howhasthecompositionoffederalandstateandlocalgovernmentspendingchangedoverthepast40years?Whatsocialandec

5、onomicfactorsmighthavecon-tributedtothischangeinhowgovernmentsspendtheirfunds?Federalspendinghasgrownfrombeinglessthan5%ofGDPin1930toapproximately20%ofGDP.Defensespendinghasdeclinedfromrepresentingmorethan50%oftotalfed-eralspendingin1960tolessthan20%

6、.SocialSecurityandhealthcarespendingnowac-countforamuchlargershareofthebudget.Atthestateandlocallevels,governmentspendinghasincreasedlessdramatically,frombeingapproximately5%ofGDPin1947toapproximately10%.Educationhasbeen,andremains,thelargestsingleex

7、penditureiteminthesebudgets,butitsshareofthebudgethasdeclinedastheshareofspendingonhealthcarehasincreased.Theshiftofexpendituresfromthestateandlocallevelstothefederalgovernmentre-flectsgreatercentralization.Perhapsgreatermobilityandadvancesincommunic

8、ationandtransportationhavealsocontributedtothistrend.Changesindemographicshaveledtoin-creasedSocialSecurityandhealthcareexpenditures:babyboomersareaging,andwithad-vancesinhealthcaretheywilllivelongerandwillusemoremedicalresourcesastheyage.3.Somegoods