Indicate the answer choice that best completes the statement or answers the question.

chapter 1. Fundamental Principles of Public Finance.

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Indicate the answer choice that best completes the statement or answers the question.

• Which of the following arguments is based on the concept of adverse selection?
• The U.S. Military needs higher pay to attract the best personnel.
• Private medical insurance companies seek to exclude those most likely to need healthcare.
• Only the national government can successfully conduct macroeconomic stabilization policies.
• Mosquito abatement is a public good.

• If a good is characterized by easy exclusion but many may concurrently use it without reducing the amount

available for others, the good is a:

• private good.
• common property resource.
• toll good.
• public good.

• Which of the following would be described as a common pool resource?
• A can of soda
• An aquifer
• National defense
• A movie theatre

• Toll goods are characterized by
• joint use and exclusion not feasible.
• alternate (or competitive) use and exclusion not feasible.
• joint use and exclusion feasible.
• alternate (or competitive) use and exclusion feasible.

• Which of the following is an application of the principle of moral hazard?
• People build homes in areas subject to severe flood damage when federally-subsidized insurance is

available.

• Inappropriate lyrics are viewable on the Web when regulations are not enforced.
• Actions by one individual have an impact on innocent bystanders.
• None of the above.

6. Nonappropriability consists of the following two aspects:

• nonsubsidization and nondistribution.
• nonexclusion and nonexhaustion.
• taxing and spending.
• none of the above.

• A public project produces the following pattern of individual benefits and costs for the people influenced by the project.

Individual Benefit Cost Share (Fiscal Administration, 10e John Mikesell) ( , Answer at the end of each Chapter) 1 / 4

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chapter 1. Fundamental Principles of Public Finance.

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A $8,000 $7,000

B $6,000 $5,000

C $10,000 $9,000

D $4,000 $6,000

E $2,000 $6,000

Total $30,000 $33,000

The project

• passes the Pareto criterion but is not economically feasible.
• would pass a majority vote but not the Pareto criterion.
• passes the criterion of economic feasibility, but would not pass majority vote.
• passes the Pareto criterion but would not pass a majority vote.

• Which is not a reason for privatizing government services?
• To increase production efficiency.
• To improve service to the public.
• To raise cash.
• All of the above are reasons to privatize.

9. Logrolling is the process where:

• one legislator trades his/her vote on one issue in exchange for the vote of another legislator on a

second issue.

• campaign contributions are used to secure a legislator’s vote on a particular issue.
• media campaigns are initiated by special interest groups to sway public opinion and subsequently

legislators vote on issues.

• unrelated amendments are attached to pending legislation to secure its passage

• Bain Educational operates an elementary school in Big Bucks, Kansas. It is open to any student in the local school

district and the school is financed by a property tax levied by the local school district. This represents an example of:

• public provision and public production
• public provision and private production
• private provision and private production
• private provision and public production

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chapter 1. Fundamental Principles of Public Finance.

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Answer Key

• b

• c

• b

• c

• a

• b

• b

• d

• a

• b

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chapter 2. The Logic of the Budget Process.

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Indicate the answer choice that best completes the statement or answers the question.

1. The purpose of a financial audit includes all of the following EXCEPT:

• Assess legality of transactions
• Evaluate effectiveness of public resource use
• Test internal controls
• Examine completeness of financial records

• Place these stages in the budget cycle in the order in which they normally occur.
• Agency request, executive consideration, legislative consideration, audit, service delivery.
• Executive consideration, agency request, legislative consideration, service delivery, audit.
• Executive consideration, agency request, legislative consideration, audit, service delivery.
• Agency request, executive consideration, legislative consideration, service delivery, audit.

• Ubiquitous strategies for supporting budget proposals include
• arguing that the program in question pays for itself.
• linking the program to a crisis.
• proposing that politically popular programs be cut first.
• identifying and rallying a loyal clientele.

• Which of the following is an accurate statement about the relative size of government purchases and

government spending?

• Because spending is the same as purchasing, the measures must be the same.
• Purchases will be greater than spending because of deficit and surplus adjustments.
• Spending includes transfer payments like social security, but purchases do not.
• Neither includes provision of government services by contract with private firms.

5. Choose the best way to complete the statement: “A budget is…”

• a forecast for spending.
• a plan for how to deal with problems.
• a forecast for revenue collection.
• an excuse for a big legislative party.

• Agency X had an appropriation of $10 million in 2013 and of $11.5 million in 2014 (an increase of $1.5

million or 15%). According to the incrementalist view, what is the 2014 budget base for the agency?

• $10 million
• $13 million ($11.5 million plus $1.5 million)
• $13.225 million ($11.5 million plus 15%)
• $11.5 million

• Use of modified accrual accounting
• eliminates the need for keeping track of encumbrances during budget execution.
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