I. Multiple-choice questions
Answer all eight
1. Match the type of good with the definition:
i. Private good a. low excludability, high exhaustibility
ii. Club good b. high excludability, low exhaustibility
iii. Common-pool good c. low excludability, low exhaustibility
iv. Public good d. high excludability, high exhaustibility
2. Governments fund education because:
a. Education is a public good.
b. Education, though a private good, has large positive externalities.
3. It’s been estimated that the steel tariffs imposed in March 2018 have boosted earnings and created about 8,700 jobs in a handful of American steel manufacturing establishments, while adding $5.6 billion to the cost of steel in products used by other businesses and ultimately by consumers across the United States (who also bear additional costs from other nations’ retaliatory tariffs). According to the logic of collective action, who is more likely to be able to influence elected officials considering whether to retain the steel tariff?
a. The few thousands in the steel industry benefiting from the tariff.
b. The hundreds of millions across the country bearing the costs of the tariff.
4. The Federal debt burden (debt/GDP ratio) is expected to increase over the coming decades mainly because
a. Revenue will be growing more slowly than GDP.
b. Defense spending will be rising faster than GDP.
c. Payments for individuals (Social Security, Medicare, Medicaid etc.) will be rising faster than GDP.
5. According to the Government Accounting Standards Board (GASB), the uses of government financial reporting include:
a. Comparing actual financial results with the legally adopted budget
b. Assessing financial condition and results of operations
c. Assisting in evaluating efficiency and effectiveness.
d. All of the above.
6. Which is correct?
a. Using a lower discount rate decreases the present value of the benefits of a capital project.
b. Using a lower discount rate increases the present value of the benefits of a capital project.
7. In order to make pension plan liabilities look smaller and plan funding ratios look better, governments like to:
a. Calculate plan liabilities using a high discount rate.
b. Calculate plan liabilities using a low discount rate.
8. Governments incur long-term obligations both when they issue bonds to finance capital projects and when they sponsor pension plans. Capital projects deliver a stream of benefits to future taxpayers, while pensions are deferred compensation for benefits provided to current taxpayers. According to the principle of temporal matching of government costs and benefits, which is correct?
a. Future taxpayers should bear the costs of capital projects, while current taxpayers should finance pension funds.
b. Future taxpayers should bear the costs of both capital projects and pension funds.
c. Current taxpayers should bear the costs of both capital projects and pension funds.
II. Short essay portion
Answer ONLY TWO of the following questions. It should generally require no more than a page for each answer. Cite your sources, and if you include quotes from the textbook, lecture notes, or other sources, keep them short (most of all I want your words on these topics).
The production, sale, or use of some goods may be accompanied by negative externalities (or spillovers), and that of other goods by positive externalities. Explain what this means, and describe (with examples) possible government responses to positive and negative spillovers.
What are the aims of the distribution function of government? How does the ‘leaky bucket’ problem constrain redistribution?
How do the Congressional authorization and appropriation procedures for federal mandatory spending differ from the procedures for discretionary spending? Give examples of each category of spending. Why is it harder to control the growth of mandatory spending?
How does government in the United States today compare to a century ago, in terms of (a) the relative importance of federal, state, and local government, (b) the overall size of government, (c) the dominant functions of government, (d) the likelihood that federal budgets are balanced, and (e) the composition of federal spending?
Why is it appropriate for state and local governments to borrow to finance their long-term capital spending, but not appropriate to borrow to pay for current operating expenses?
This exam can be answered using material provided in the Course Materials folder. Prime sources include: ATTACHED
Principles and Problems of Public Finance
Market and Government Functions and Failures
Types of goods
GASB statement excerpts
Introduction to the federal budget process (Hennessey)
Charting government finances
Government then and now
Federal spending projections (CBO)
Budget Outlook 2020-2030 (CBO)
Long-Term Budget Outlook (CBO)
Notes on capital budgeting
State and Local Government Pensions
Interperiod Budget Equity
Of course you can also consult the textbook (TEXTBOOK Financial-Strategy-for-Public-Managers) and any other sources you may wish to use. But remember again to cite your sources and attribute any quotes used!
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