SOLUTION MANUAL FOR PUBLIC
FINANCE: A CONTEMPORARY
APPLICATION OF THEORY TO
POLICY 12TH EDITION LATEST VERSION
2025/2026 [A+]
BY DAVID HYMAN (AUTHOR)
,PUBLIC FINANCE: A CONTEMPORARY APPLICATION OF THEORY TO POLICY, 12E.
CHAPTER ONE
INDIVIDUALS AND GOVERNMENT
INSTRUCTIONAL OBJECTIVES
CHAPTER 1 IS A GENERAL INTRODUCTION TO THE FIELD OF PUBLIC FINANCE,
EMPHASIZING THE RELATIONSHIP BETWEEN INDIVIDUALS AND GOVERNMENT. THE
FUNCTIONS OF GOVERNMENT ARE OUTLINED, AND THE IMPORTANCE OF TAXES IN
HOUSEHOLD BUDGETS IS HIGHLIGHTED. THE CHAPTER SEEKS TO DEVELOP AN
UNDERSTANDING OF THE ECONOMIC ROLE OF GOVERNMENT AS A SUPPLIER OF
USEFUL GOODS AND SERVICES. STUDENTS ARE ALSO EXPECTED TO DIGEST DATA ON
THE ACTUAL EXTENT OF GOVERNMENT ACTIVITY IN THE UNITED STATES AND OTHER
NATIONS. THEY SHOULD KNOW THE CURRENT STRUCTURE OF GOVERNMENT
EXPENDITURES AND REVENUES IN THE UNITED STATES, HOW GOVERNMENT HAS
GROWN SINCE 1920, AND HOW THE STRUCTURE OF FEDERAL GOVERNMENT SPENDING
HAS CHANGED SINCE 1960.
IN ADDITION, THE CHAPTER SEEKS TO DEMONSTRATE THAT THE PROBLEM OF
SCARCITY IMPLIES THAT AN INCREASE IN RESOURCES DEVOTED TO GOVERNMENT
GOODS AND SERVICES DECREASES AVAILABILITY OF RESOURCES FOR NONGOVERN-
MENT USES. IT IS ALSO MADE CLEAR TO STUDENTS HOW GOVERNMENT PROVISION OF
GOODS AND SERVICES DIFFERS FROM MARKET PROVISION OF GOODS AND SERVICES.
CHANGES IN THIS EDITION
CHAPTER 1 DISCUSSES THE GROWTH IN GOVERNMENT SPENDING, THE IMPACT
OF SLOW ECONOMIC GROWTH ON PUBLIC FINANCE ON THE FEDERAL, STATE
AND LOCAL GOVERNMENT LEVELS, AND HEALTH CARE ISSUES.
ALL DATA ON GOVERNMENT SPENDING AND REVENUES HAVE BEEN UPDATED TO
THE LATEST AVAILABLE YEAR. PUBLIC EXPENDITURE DATA HAVE BEEN REVISED
USING THE LATEST NATIONAL INCOME AND PRODUCT ACCOUNT (NIPA) FIGURES
FOR GOVERNMENT CONSUMPTION AND INVESTMENT, DOCUMENTING THE RISE IN
THE SHARE OF THE PUBLIC SECTOR AS A SHARE OF GDP SINCE 2001.
THE INTERNATIONAL VIEW ON GOVERNMENT SPENDING HAS BEEN REVISED AND
UPDATED WITH THE LATEST DATA.
DISCUSSION OF MANDATORY VERSUS DISCRETIONARY FEDERAL GOVERNMENT
SPENDING HAS BEEN ADDED.
GRAPHS HAVE BEEN REDONE TO REFLECT THE LATEST AVAILABLE OBSERVATIONS.
1
,2 | PART ONE | THE ECONOMIC BASIS OF GOVERNMENT ACTIVITY
THE DISCUSSION OF THE MIX BETWEEN TRANSFER PAYMENTS AND GOVERNMENT
CONSUMPTION HAS BEEN REVISED. THE GROWTH IN HEALTH CARE SPENDING BY
GOVERNMENT HAS BEEN DOCUMENTED, SHOWING THAT IT IS NOW THE LARGEST
AND FASTEST GROWING CATEGORY OF FEDERAL GOVERNMENT EXPENDITURE.
THE ANALYSIS OF THE IMPLICATIONS OF AGING POPULATIONS FOR PUBLIC
FINANCE HAS BEEN UPDATED BASED ON EMPIRICAL ANALYSIS OF THE LATEST UN
PROJECTIONS OF CHANGING WORLD DEMOGRAPHICS. THERE IS MORE DISCUSSION
OF EUROPEAN AGING AND IMPLICATIONS FOR PENSION SYSTEMS. THE IMPACT THE
AGING POPULATION ON HEALTH CARE SPENDING IN THE UNITED STATES IS
DISCUSSED.
CHAPTER OUTLINE
INDIVIDUALS, SOCIETY, AND
GOVERNMENT GOVERNMENTS AND
POLITICAL INSTITUTIONS
THE ALLOCATION OF RESOURCE BETWEEN
GOVERNMENT AND PRIVATE USE THE MIXED
ECONOMY, MARKETS, AND POLITICS
GOVERNMENT EXPENDITURES IN THE UNITED STATES
INTERNATIONAL VIEW: HOW MUCH GOVERNMENT? THE SHARE OF GOVERNMENT
EXPENDITURE IN MODERN ECONOMIES
THE STRUCTURE OF STATE AND LOCAL GOVERNMENT
EXPENDITURE FINANCING GOVERNMENT
EXPENDITURE IN THE UNITED STATES
MARKET FAILURE AND THE FUNCTIONS OF GOVERNMENT: HOW MUCH
GOVERNMENT IS ENOUGH? AGING POPULATIONS: IMPLICATIONS FOR
PUBLIC FINANCE
MAJOR POINTS AND LECTURE SUGGESTIONS
1. MY OBJECTIVE IN THE FIRST LECTURE IS TO MAKE IT CLEAR TO STUDENTS HOW
ECONOMIC ANALYSIS OF THE FUNC- TIONS AND ACTIVITIES OF GOVERNMENTS
FITS IN WITH THEIR OTHER COURSES. SINCE MOST STUDENTS HAVE ALREADY HAD
AT LEAST ONE COURSE IN MICROECONOMICS, I POINT OUT HOW GOVERNMENTS
CAN BE THOUGHT OF AS AGENTS FOR SUPPLYING GOODS AND SERVICES WHOSE
QUANTITIES HAVE BEEN DETERMINED THROUGH POLITICAL, AS OPPOSED TO
MARKET, INTERACTION. THE ROLE OF GOVERNMENT IN THE MIXED ECONOMY IS
SCHEMATICALLY ILLUSTRATED WITH A MODIFIED CIRCULAR FLOW DIAGRAM.
FIGURE 1.2 REPRESENTS A USEFUL STARTING POINT FOR ILLUSTRATING HOW
THE ECONOMIC ANALYSIS OF GOVERNMENT FITS IN WITH PREVIOUS ANALYSES
OF MARKETS TO WHICH MOST STUDENTS WILL HAVE ALREADY BEEN EXPOSED. I
USUALLY DRAW THE DIAGRAM ON THE BOARD AND SHOW HOW BOTH
HOUSEHOLDS AND BUSINESS FIRMS HAVE ECONOMIC RELATIONS WITH
GOVERNMENTS.
, 2. THE TRADEOFF BETWEEN GOVERNMENT GOODS AND SERVICES, AND PRIVATE
GOODS AND SERVICES IS ILLUSTRATED WITH THE PRODUCTION POSSIBILITY
CURVE. FIGURE 1.1 IS FAMILIAR TO MOST STUDENTS, AND ITS APPLICATION TO
ANALYSIS OF GOVERNMENT GOODS AND SERVICES USUALLY CAPTURES THEIR
ATTENTION. IT HELPS TO USE THE GRAPH IN CLASS TO DISCUSS REALLOCATION
OF RESOURCES FROM MILITARY TO NONMILITARY USES. ANOTHER INTERESTING
USE OF THE GRAPH IS TO SHOW HOW INCREASED ENVIRONMENTAL QUALITY
IMPROVEMENT SERVICES SUPPLIED BY GOVERNMENT WILL REQUIRE THE
SACRIFICE OF MATERIAL GOODS AND SERVICES, AS THE PRICES OF SUCH
PRODUCTS AS FUEL, ELECTRICITY, AND AUTOMOBILES RISE.
FINANCE: A CONTEMPORARY
APPLICATION OF THEORY TO
POLICY 12TH EDITION LATEST VERSION
2025/2026 [A+]
BY DAVID HYMAN (AUTHOR)
,PUBLIC FINANCE: A CONTEMPORARY APPLICATION OF THEORY TO POLICY, 12E.
CHAPTER ONE
INDIVIDUALS AND GOVERNMENT
INSTRUCTIONAL OBJECTIVES
CHAPTER 1 IS A GENERAL INTRODUCTION TO THE FIELD OF PUBLIC FINANCE,
EMPHASIZING THE RELATIONSHIP BETWEEN INDIVIDUALS AND GOVERNMENT. THE
FUNCTIONS OF GOVERNMENT ARE OUTLINED, AND THE IMPORTANCE OF TAXES IN
HOUSEHOLD BUDGETS IS HIGHLIGHTED. THE CHAPTER SEEKS TO DEVELOP AN
UNDERSTANDING OF THE ECONOMIC ROLE OF GOVERNMENT AS A SUPPLIER OF
USEFUL GOODS AND SERVICES. STUDENTS ARE ALSO EXPECTED TO DIGEST DATA ON
THE ACTUAL EXTENT OF GOVERNMENT ACTIVITY IN THE UNITED STATES AND OTHER
NATIONS. THEY SHOULD KNOW THE CURRENT STRUCTURE OF GOVERNMENT
EXPENDITURES AND REVENUES IN THE UNITED STATES, HOW GOVERNMENT HAS
GROWN SINCE 1920, AND HOW THE STRUCTURE OF FEDERAL GOVERNMENT SPENDING
HAS CHANGED SINCE 1960.
IN ADDITION, THE CHAPTER SEEKS TO DEMONSTRATE THAT THE PROBLEM OF
SCARCITY IMPLIES THAT AN INCREASE IN RESOURCES DEVOTED TO GOVERNMENT
GOODS AND SERVICES DECREASES AVAILABILITY OF RESOURCES FOR NONGOVERN-
MENT USES. IT IS ALSO MADE CLEAR TO STUDENTS HOW GOVERNMENT PROVISION OF
GOODS AND SERVICES DIFFERS FROM MARKET PROVISION OF GOODS AND SERVICES.
CHANGES IN THIS EDITION
CHAPTER 1 DISCUSSES THE GROWTH IN GOVERNMENT SPENDING, THE IMPACT
OF SLOW ECONOMIC GROWTH ON PUBLIC FINANCE ON THE FEDERAL, STATE
AND LOCAL GOVERNMENT LEVELS, AND HEALTH CARE ISSUES.
ALL DATA ON GOVERNMENT SPENDING AND REVENUES HAVE BEEN UPDATED TO
THE LATEST AVAILABLE YEAR. PUBLIC EXPENDITURE DATA HAVE BEEN REVISED
USING THE LATEST NATIONAL INCOME AND PRODUCT ACCOUNT (NIPA) FIGURES
FOR GOVERNMENT CONSUMPTION AND INVESTMENT, DOCUMENTING THE RISE IN
THE SHARE OF THE PUBLIC SECTOR AS A SHARE OF GDP SINCE 2001.
THE INTERNATIONAL VIEW ON GOVERNMENT SPENDING HAS BEEN REVISED AND
UPDATED WITH THE LATEST DATA.
DISCUSSION OF MANDATORY VERSUS DISCRETIONARY FEDERAL GOVERNMENT
SPENDING HAS BEEN ADDED.
GRAPHS HAVE BEEN REDONE TO REFLECT THE LATEST AVAILABLE OBSERVATIONS.
1
,2 | PART ONE | THE ECONOMIC BASIS OF GOVERNMENT ACTIVITY
THE DISCUSSION OF THE MIX BETWEEN TRANSFER PAYMENTS AND GOVERNMENT
CONSUMPTION HAS BEEN REVISED. THE GROWTH IN HEALTH CARE SPENDING BY
GOVERNMENT HAS BEEN DOCUMENTED, SHOWING THAT IT IS NOW THE LARGEST
AND FASTEST GROWING CATEGORY OF FEDERAL GOVERNMENT EXPENDITURE.
THE ANALYSIS OF THE IMPLICATIONS OF AGING POPULATIONS FOR PUBLIC
FINANCE HAS BEEN UPDATED BASED ON EMPIRICAL ANALYSIS OF THE LATEST UN
PROJECTIONS OF CHANGING WORLD DEMOGRAPHICS. THERE IS MORE DISCUSSION
OF EUROPEAN AGING AND IMPLICATIONS FOR PENSION SYSTEMS. THE IMPACT THE
AGING POPULATION ON HEALTH CARE SPENDING IN THE UNITED STATES IS
DISCUSSED.
CHAPTER OUTLINE
INDIVIDUALS, SOCIETY, AND
GOVERNMENT GOVERNMENTS AND
POLITICAL INSTITUTIONS
THE ALLOCATION OF RESOURCE BETWEEN
GOVERNMENT AND PRIVATE USE THE MIXED
ECONOMY, MARKETS, AND POLITICS
GOVERNMENT EXPENDITURES IN THE UNITED STATES
INTERNATIONAL VIEW: HOW MUCH GOVERNMENT? THE SHARE OF GOVERNMENT
EXPENDITURE IN MODERN ECONOMIES
THE STRUCTURE OF STATE AND LOCAL GOVERNMENT
EXPENDITURE FINANCING GOVERNMENT
EXPENDITURE IN THE UNITED STATES
MARKET FAILURE AND THE FUNCTIONS OF GOVERNMENT: HOW MUCH
GOVERNMENT IS ENOUGH? AGING POPULATIONS: IMPLICATIONS FOR
PUBLIC FINANCE
MAJOR POINTS AND LECTURE SUGGESTIONS
1. MY OBJECTIVE IN THE FIRST LECTURE IS TO MAKE IT CLEAR TO STUDENTS HOW
ECONOMIC ANALYSIS OF THE FUNC- TIONS AND ACTIVITIES OF GOVERNMENTS
FITS IN WITH THEIR OTHER COURSES. SINCE MOST STUDENTS HAVE ALREADY HAD
AT LEAST ONE COURSE IN MICROECONOMICS, I POINT OUT HOW GOVERNMENTS
CAN BE THOUGHT OF AS AGENTS FOR SUPPLYING GOODS AND SERVICES WHOSE
QUANTITIES HAVE BEEN DETERMINED THROUGH POLITICAL, AS OPPOSED TO
MARKET, INTERACTION. THE ROLE OF GOVERNMENT IN THE MIXED ECONOMY IS
SCHEMATICALLY ILLUSTRATED WITH A MODIFIED CIRCULAR FLOW DIAGRAM.
FIGURE 1.2 REPRESENTS A USEFUL STARTING POINT FOR ILLUSTRATING HOW
THE ECONOMIC ANALYSIS OF GOVERNMENT FITS IN WITH PREVIOUS ANALYSES
OF MARKETS TO WHICH MOST STUDENTS WILL HAVE ALREADY BEEN EXPOSED. I
USUALLY DRAW THE DIAGRAM ON THE BOARD AND SHOW HOW BOTH
HOUSEHOLDS AND BUSINESS FIRMS HAVE ECONOMIC RELATIONS WITH
GOVERNMENTS.
, 2. THE TRADEOFF BETWEEN GOVERNMENT GOODS AND SERVICES, AND PRIVATE
GOODS AND SERVICES IS ILLUSTRATED WITH THE PRODUCTION POSSIBILITY
CURVE. FIGURE 1.1 IS FAMILIAR TO MOST STUDENTS, AND ITS APPLICATION TO
ANALYSIS OF GOVERNMENT GOODS AND SERVICES USUALLY CAPTURES THEIR
ATTENTION. IT HELPS TO USE THE GRAPH IN CLASS TO DISCUSS REALLOCATION
OF RESOURCES FROM MILITARY TO NONMILITARY USES. ANOTHER INTERESTING
USE OF THE GRAPH IS TO SHOW HOW INCREASED ENVIRONMENTAL QUALITY
IMPROVEMENT SERVICES SUPPLIED BY GOVERNMENT WILL REQUIRE THE
SACRIFICE OF MATERIAL GOODS AND SERVICES, AS THE PRICES OF SUCH
PRODUCTS AS FUEL, ELECTRICITY, AND AUTOMOBILES RISE.
