1. Suppose federal, state, and local governments in the United States were to engage in a massive campaign to deal with AIDS, drug abuse, and other health- related problems. The increase in government medical spending would require a massive tax increase. As- suming that resources and technology are fixed, use a production-possibility curve to show the cost of increased government health services.
2. As of 2009, many state governments were experienc- ing fiscal problems, and tax revenues were falling short of planned expenditures. What factors can in- fluence state revenue collections and expenditures? Explain why state governments must cut spending or increase taxes when revenues fall short of expendi- tures. Give examples of the types of taxes used by state governments.