Question: What is the maximum amount a 55-

> Suppose the government decides to reduce taxes today by 1% of GDP, financed by higher borrowing, with the borrowing to be repaid 10 years from now with higher taxes. Discuss the various arguments about what effect this will have on the investment rate to

> The debt- GDP ratio in Belgium exceeded 120% in the early 1990s and has fallen to just over 80% more recently. Italy had a debt- GDP ratio of about 100% even before the euro crisis. The rapid rise in Japan’s debt- GDP ratio was shown in Figure 18.4. Yet

> Consider the intertemporal budget constraint in equation (18.5). Assume the interest rate is i = 5%. (a) Suppose the government cuts taxes today by $100 billion. Describe three possible ways the government can change spending and taxes to satisfy its bud

> Consider an economy that exists for three periods: period 1, period 2, and period 3. In each period, the government must satisfy the budget constraint Bt+1 =(1 + i)Bt + Gt − Tt . (a) Write this budget constraint for each period. (b) What must be true abo

> To what extent were the U.S. budget deficits of the 1980s and 2000s caused by higher spending versus lower tax revenues? Using the Economic Report of the President, explain which categories of spending or taxes were most responsible. As a share of GDP, w

> What is the economic interpretation of the intertemporal budget constraint in equation (18.6)? Does this interpretation apply to the primary budget deficit or the total deficit? Why?

> Suppose the economy is hit with a temporary positive TFP shock. For example, suppose weather conditions are temporarily very favorable for agriculture. (a) Analyze the effect of the shock in the labor market diagram of a standard DSGE model (with no stic

> Suppose a condominium can be rented for $1,000 a month, it depreciates at 10 percent per year, the annual interest rate is 5 percent, and the tax rate relevant for the mortgage interest deduction is 40 percent. Let the

> Suppose the TFP parameter,

> Create a graph of the investment rate in physical capital, such as we might use in studying the Solow growth model. In doing this, you will learn to appreciate some of the subtleties in the National Income and Product Accounts. Follow the steps below: (i

> Consider the user cost of capital in the presence of taxes, starting with equation (17.5). Suppose the price of capital, pk , is constant, so there is no capital- gain term. What is new, however, is an investment tax credit: rather than costing pk , a u

> Suppose the user cost of capital in an economy with no corporate income tax is 10 percent. (a) What is the user cost if the corporate tax rate rises to 20 percent? 30 percent? (b) Suppose an economy’s steady- state investment rate I / Y is 30 percent whe

> An economy begins in steady state with an investment rate of 20 percent, a corporate tax rate of 25 percent, a real interest rate of 2 percent, a depreciation rate of 7 percent, and a price of capital that falls at an annual rate of 2 percent. (a) What i

> Figures 16.3 and 16.4 show household debt as a percentage of GDP and the personal saving rate. According to these graphs, the ratio of household debt to GDP in 2007, before the financial crisis took hold, was just under 100 percent. In the sa

> As discussed extensively in Chapter 7, income inequality has risen in recent decades in the United States. This question considers the implications for consumption inequality. (a) Suppose a substantial part of the rise in inequality is due to the rising

> Suppose that the government fears the economy might be heading into a recession and decides to cut income taxes today in an effort to prevent the recession. (a) How does the Ricardian equivalence argument apply in this case? How will consumption respond

> With log utility, the solution to the neoclassical consumption model is given implicitly by the first two equations on page 454, the Euler equation and the intertemporal budget constraint: There, we solved these two equations for ctoday and cfuture in

> Table 18.1 reports the composition of the federal budget as a percentage of GDP in 2015. Create a similar table using the latest available data from the Economic Report of the President. Has the composition of spending and taxes changed? What

> Sally and Charles Heck received the following dividends and interest during 2016:  Assuming the Hecks file a joint tax return, complete Schedule B of Form 1040 (on Page 2-35) for them for the 2016 tax year. Do not attempt to complete the Q

> If a taxpayer holding Series I Bonds does not make an election with respect to the taxation of the bonds, how is the interest that accrues each year on the bonds taxed?

> How are qualified dividends taxed in 2016? Please give the rates of tax which apply to qualified dividends, and specify when each of these rates applies.

> Kerry and Jim have a successful marijuana farm in the woods around Humboldt County, California. Growing marijuana is illegal for federal purposes. Are Kerry and Jim required by law to report the income from their farm on their tax return? Why?

> David is certified by his doctor as terminally ill with liver disease. His doctor certifies that he cannot reasonably be expected to live for more than a year. He sells his life insurance policy to Viatical Settlements, Inc., for $250,000. He has paid $2

> Larry is a tax accountant and Sheila is a hairdresser. Larry prepares Sheila’s tax return for free and Sheila agrees to style Larry’s hair six times for free in return for the tax return. The value of the tax return is approximately $300 and the hair sty

> John installed a new roof on his friend’s house in return for a used truck worth $6,000. How much income must John report on his tax return for his services?

> 1. Indicate whether each of the items listed below would be included (I) in or excluded (E) from gross income for the 2016 tax year. a. Welfare payments b. Commissions c. Hobby income d. Scholarships for room and board e. $300 set of golf clubs, an emplo

> Robert, a new client of yours, is a self-employed caterer in Santa Fe, New Mexico. Robert drives his personal van when delivering catered meals to customers. You have asked him to provide the amount of business miles driven using his vehicle. You are pla

> Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles area. Although typically seat-fillers are not compensated,

> Professor Vanessa Lazo received a free tour to Costa Rica in a drawing at a professional conference. Professor Lazo has asked for your help in determining whether the free tour that she received is taxable. She understands that prizes and awards are taxa

> Your supervisor has asked you to research the following situation concerning Shanita Mauer. Shanita worked and lived in Los Angeles, CA. She accepted a new position with her firm in Dallas, TX. During the move, Shanita incurred the following expenses: Co

> 21.What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2016? a. April 15, 2017 b. April 17, 2017 c. December 31, 2016 d. October 15, 2017 22. Which of the following statements with respect to a qualified retirement plan

> 11.Which of the following is false about the self-employed health insurance deduction? a. The deduction cannot be claimed when a subsidized employer health insurance plan is also available. b. The deduction cannot be claimed if the taxpayer has an overal

> 1. Which of the following is true about the rental of real estate? a. Depreciation and maintenance expenses for an apartment complex are deductible. b. A vacation home is a home that is rented for 15 days or more and is used by the taxpayer for personal

> Greg died on July 1, 2016, and left Lea, his wife, a $50,000 life insurance policy which she elects to receive at $5,000 per year plus interest for 10 years. In the current year, Lea receives $5,900. How much should Lea include in her gross income?

> 1. Which of the following expenses is deductible as an entertainment expense? a. The depreciation on an airplane used to entertain customers b. The cost of a hunting camp used to entertain customers c. The dues of a racket club used to keep in shape d. T

> 1. Which of the following is not a test for the deductibility of a business expense? a. Ordinary and necessary test b. Expectation of profit test c. Reasonableness test d. Business purpose test 2. In the current year, Mary started a profitable housekeep

> 1. Jim has a net operating loss in 2016. If he does not make any special elections, what is the first year to which Jim carries the net operating loss? a. 2012 b. 2013 c. 2014 d. 2015 e. 2017 2. Which of the following factors is not considered by the IR

> 1.Which of the following might result in life insurance proceeds that are taxable to the recipient? a. A life insurance policy in which the insured is the son of the taxpayer and the beneficiary is the taxpayer b. A life insurance policy transferred by a

> 1. The definition of gross income in the tax law is: a. All items specifically listed as income in the tax law b. All cash payments received for goods provided and services performed c. All income from whatever source derived d. All income from whatever

> Allen (age 32) takes a distribution of $20,000 from his traditional IRA account which he plans to deposit into an IRA with a different bank. During the 60-day rollover period, he gambles and loses the entire IRA balance. What income and/or penalties must

> Telly, age 38, has a $140,000 IRA with Blue Mutual Fund. He has read good things about the management of Green Mutual Fund, so he opens a Green Fund IRA. Telly asked for and received his balance from the Blue Fund on May 1, 2016. a. What amount will Tell

> During 2016, Jill, age 39, participated in a Section 401(k) plan which provides for maximum employee contributions of 12 percent. Jill’s salary was $90,000 for the year. Jill elects to make the maximum contribution. What is Jill’s maximum tax-deferred co

> Anthony, a self-employed plumber, makes a maximum contribution to a SEP for his employee, Debra. Debra’s compensation is $40,000 for the year. How much is he allowed to contribute to the plan for Debra?

> Tony is a 45-year-old psychiatrist who has net earned income of $300,000 in 2016. What is the maximum amount he can contribute to his SEP for the year?

> Sharon transfers to Russ a life insurance policy with a cash surrender value of $35,000 and a face value of $100,000 in exchange for real estate. Russ continues to pay the premiums on the policy until Sharon dies 7 years later. At that time, Russ has pai

> During 2016, Jerry is a self-employed therapist, and his net earned income is $160,000 from his practice. Jerry’s SEP Plan, a defined contribution plan, states that he will contribute the maximum amount allowable. Calculate Jerry’s contribution.

> Dori is 58 years old and retired in 2016. She receives a pension of $25,000 a year and no other income. She wishes to put the maximum allowed into an IRA. How much can she contribute to her IRA?

> Bob is a single, 40-year-old doctor earning $190,000 a year and is not covered by a pension plan at work. How much can he put into a deductible Traditional IRA in 2016?

> Barry is a single, 40-year-old software engineer earning $190,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2016?

> What is the maximum amount a 45-year-old taxpayer and 45-year-old spouse can put into a Traditional or Roth IRA for 2016 (assuming they have sufficient earned income, but do not have an income limitation and are not covered by another pension plan)?

> Phil and Linda are 25-year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not. a. Assuming Phil’s wages were $27,000 and Linda’s wages were $18,500 for 2016 and they had no other income, what is the

> Karen, 28 years old and a single taxpayer, has a salary of $30,000 and rental income of $33,000 for the 2016 calendar tax year. Karen is covered by a pension through her employer. a. What is the maximum amount that Karen may deduct for contributions to h

> Sherry moved to Chicago in the current year to take a new job after being laid off from her job in San Diego. She incurred $5,000 of costs moving her household goods, $300 for a one-way airplane ticket to Chicago, $800 for her first month’s rent, and $50

> Go to the IRS website (www.irs.gov) and redo Problem 6 using the most recent interactive Form 3903, Moving Expenses. Print out the completed Form 3903.

> Lola, age 62, began receiving a $1,000 monthly annuity in the current year upon the death of her husband. She received eight payments in the current year. Her husband contributed $58,500 to the qualified employee plan. Use the Simplified Method Worksheet

> Assume Keith’s employer reimburses him $4,200 for the move. Using the information from Problem 5, calculate Keith’s moving expenses deduction using Form 3903

> In June of 2016, Keith Silva accepts a new job with the same employer in San Diego. He formerly commuted 12 miles to a job in Canton, OH; San Diego is 2,150 miles from his old home. He incurs the following expenses in his move from Ohio in 2016: Moving a

> Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2016, his share of the loss from the limited partnership was $11,000, and his loss from the rental condo was $17,000.

> Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1990. He also acquired a rental house in 2016, which he actively manages. During 2016, Walter’s share of the partnership’s losses was $30,000, and his rental house ge

> Sherry rents her vacation home for 6 months and lives in it for 6 months during the year. Her gross rental income during the year is $6,000. Total real estate taxes for the home are $950, and interest on the home mortgage is $3,000. Annual utilities and

> Dick owns a house that he rents to college students. Dick receives $800 per month rent and incurs the following expenses during the year: Real estate taxes $1,250 Mortgage interest 1,500 Insurance 425 Repairs 562 Association

> Cindy operates a computerized engineering drawing business from her home. Cindy maintains a home office and properly allocates the following expenses to her office: Depreciation …………………………………………………... $1,500 Utilities …………………………………………………………. 500 Real es

> Carrie loaned her friend $4,500 to buy a used car. She had her friend sign a note with repayment terms and set a reasonable interest rate on the note because the $4,500 was most of her savings. Her friend left town without a forwarding address, and nobod

> Sharon is an orthopedic surgeon. She performed a surgery 2 years ago and billed $10,000 to her patient. After 2 years of attempting to collect the money, it is clear that she will not be able to collect anything. Sharon reports income on her tax return o

> Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless. a. How much is Steinar’s deduction for the bad debt for this year? (Assume he has no other capital gains or losses.) b. What can Steinar do with

> For each of the following independent cases, indicate the amount of gross income that must be included on the taxpayer’s 2016 income tax return. a. Malchia won a $4,000 humanitarian award. b. Rob won a new automobile (with a sticker price of $15,700 and

> Sam owns an insurance agency and makes the following business gifts during the year. Calculate Sam’s deduction for business gifts. Amount Allowed Donee Amount Ms. Sears (a client) $35, plus $4 shipping $ Mr. Williams (a tennis part

> Cooper and Brandy are married and file a joint income tax return with two separate Schedule Cs. Cooper is an independent security specialist who spent $395 on uniforms during the year. His laundry expenses for the uniforms were $175 for this year, plus $

> Carey opens a law office in Chicago on January 1, 2016. On January 1, 2016, Carey purchases an annual subscription to a law journal for $170 and a 1-year legal reference service for $1,500. Carey also subscribes to Chicago Magazine for $54 so she can fin

> a. Loren is a secretary in a lawyer’s office. Since he often deals with legal matters, Loren feels that a law degree will be beneficial to him. May Loren deduct his educational expenses for law school as a miscellaneous itemized deduction? Explain b. Ali

> Marty is a sales consultant. Marty incurs the following expenses related to the entertainment of his clients in 2016: Dues to a country club ………………………………………………… $4,500 (The country club was used for business 25 days of the total 75 days that it was use

> Grace is a self-employed sales consultant who spends significant time entertaining potential customers. She keeps all the appropriate records to substantiate her entertainment. She has the following expenses in the current year: Restaurant meals …………………

> Bob is a self-employed lawyer and is required to take a week of continuing legal education every year to maintain his license. This year he paid $1,150 in course fees for his continuing legal education in a different city. He also paid $354 for airfare a

> Go to the U.S. General Services Administration (GSA) website. For 2016, what is the per diem rate for each of the following towns: a. Flagstaff, AZ for April and November b. Palm Springs, CA for March and December c. Denver, CO for June and September

> Joan is a self-employed attorney in New York City. Joan took a trip to San Diego, CA, primarily for business, to consult with a client and take a short vacation. On the trip, Joan incurred the following expenses: Airfare to and from San Diego …………………………

> Martha is a self-employed tax accountant who drives her car to visit clients on a regular basis. She drives her car 4,000 miles for business and 10,000 for commuting and other personal use. Assuming Martha uses the standard mileage method, how much is he

> How much of each of the following is taxable? a. Cheline, an actress, received a $10,000 gift bag from the Oscars during 2016. b. Jon received a gold watch worth $660 for 25 years of service to his accounting firm (not a qualified award). c. Kerry won $1

> Art is a self-employed installer of home entertainment systems, and he drives his car frequently to installation locations. Art drove his car 15,000 miles for business purposes and 20,000 miles in total. His actual expenses, including depreciation, for o

> Teresa is a civil engineer who uses her automobile for business. Teresa drove her automobile a total of 14,800 miles during 2016, of which 75 percent was business mileage. The actual cost of gasoline, oil, depreciation, repairs, and insurance for the yea

> Go to the IRS website (www.irs.gov) and redo Problem 5, using the mos recent interactive Cost of Goods Sold Schedule on Page 2 of Schedule C (Form 1040). Print out the completed Cost of Goods Sold schedule.

> Kevin owns a retail store, and during the current year he purchased $610,000 worth of inventory. Kevin’s beginning inventory was $67,000, and his ending inventory is $77,200. During the year, Kevin withdrew $1,780 in inventory for his p

> Lawrence owns a small candy store that sells one type of candy. His beginning inventory of candy was made up of 10,000 boxes costing $1.50 per box ($15,000), and he made the following purchases of candy during the year: At the end of the year, Lawrence

> Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows: Gross income ……………………………………………......... $50,000 Travel …………………………………………….........………………… 1,000 Contribution

> Go to the IRS website (www.irs.gov) and redo Problem 1 (Chapter 3, Group 2) using the most recent interactive Schedule C (Form 1040) on the IRS website that will allow the required information to be input. Print out the completed Schedule C.

> Please answer the following questions regarding the taxability of Social Security: a. A 68-year-old taxpayer has $20,000 in Social Security income and $100,000 in tax-free municipal bond income. Does the municipal bond income affect the amount of Social

> Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott’s CPA practice is located at 678 Third Street, Riverside, CA 92860. During 201

> As part of the property settlement related to their divorce, Cindy must give Allen the house that they have been living in, while she gets 100 percent of their savings accounts. The house was purchased for $90,000 15 years ago in Southern California and

> During the 2016 tax year, Brian, a single taxpayer, received $7,200 in Social Security benefits. His adjusted gross income for the year was $14,500 (not including the Social Security benefits) and he received $30,000 in tax-exempt interest income and has

> Lew is a practicing CPA who decides to raise bonsai as a business. Lew engages in the activity and has the following revenue and expenses: Sales …………………………………………………... $ 5,000 Depreciation on greenhouse …………………. 10,000 Fertilizer, soil, pots ………………………………

> Ellen’s tax client is employed at a large company that offers medical flexible spending accounts to its employees. Tom must decide at the beginning of the year whether he wants to put as much as $2,550 of his salary into the medical spending account. He

> Maggie lost her job in the current year. She paid the expenses of owning her home, interest on the mortgage, and property taxes out of savings. Her tax return shows negative taxable income of $20,000. How should this loss be treated?

> Linda and Richard are married and file a joint return for 2016. During the year, Linda, who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline; Richard used the same amount. Linda and Richard also

> Carl has had a couple of good years in his new business. However, in the current year he has a net operating loss of $80,000. He does not feel that the future of his business is very bright. As his tax accountant, how would you recommend Carl treat his n

> Lydia, a married individual, was unemployed for a few months during 2016. During the year, she received $3,250 in unemployment compensation payments. How much of her unemployment compensation payments must be included in gross income?

> Ann is a self-employed restaurant critic who does her work exclusively from a home office. Ann’s income is $25,000 before the home office deduction this year. Her office takes up 200 square feet of her 1,000-square-foot apartment. The total expenses for

> Karen is a wealthy retired investment advisor who is in the 35 percent tax bracket. She has a choice between investing in a high-quality municipal bond paying 5 percent or a high-quality corporate bond paying 7 percent. Which investment do you think she

> Randi qualifies for a home deduction. The amount of space devoted to business use is 400 square feet of the total 2,000 square feet of her home. Randi’s mortgage interest and property taxes in total are $1,600. Other deductions properly

> Arlen is required by his divorce agreement to pay alimony of $2,000 a month and child support of $2,000 a month to his ex-wife Jane. What is the tax treatment of these two payments for Arlen? What is the tax treatment of these two payments for Jane? Arle

> Vandell is a taxpayer in the 28 percent tax bracket. He invests in Otay Mesa Water District Bonds that pay 4.5 percent interest. What taxable interest rate will provide the same after-tax return to Vandell?

> Pete qualifies for a home office deduction. The amount of space devoted to business use is 300 square feet of the total 1,200 square feet in his apartment. Pete’s total rent for the year is $9,600, and he pays utilities (other than telephone) of $2,500 f