Public Provision and Production, Exams of Insurance Economics

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Fiscal Administration, Mikesell {Complete Test Bank Quizzes}

Exam Questions and Answers

INSTRUCTOR’S MANUAL:

FISCAL ADMINISTRATION, ANALYSIS AND APPLICATIONS FOR THE

PUBLIC SECTOR

JOHN L. MIKESELL

INDIANA UNIVERSITY

NINTH EDITION

Chapter One Questions and Exercises

a. Yes. Total project benefits (4,900) exceed total project cost (4,000). b. No. No individual has benefits greater than cost of project. c. No. Based on net benefits, A and B would vote yes; C, D, and E would vote no. d. Revise cost shares so that Residents A and B pay more and reduce cost shares borne by C, D, and E.

2. Many of the benefits of primary and secondary education are public or social (external to the recipient of the education). The entity paying for the service is not able to capture the full benefit of the service.
3. No – the bread is rival and exhaustible. Examination Questions
4. 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: a. public provision and public production b. public provision and private production c. private provision and private production d. private provision and public production
5. Which of the following arguments is based on the concept of adverse selection? a. The U.S. Military needs higher pay to attract the best personnel. b. Private medical insurance companies seek to exclude those most likely to need healthcare. c. Only the national government can successfully conduct macroeconomic stabilization policies. d. Mosquito abatement is a public good.
6. Which of the following would be described as a common pool resource?

9. Which is not a reason for privatizing government services? a. To increase production efficiency. b. To improve service to the public. c. To raise cash. d. All of the above are reasons to privatize.
10. Logrolling is the process where: a. one legislator trades his/her vote on one issue in exchange for the vote of another legislator on a second issue. b. campaign contributions are used to secure a legislator’s vote on a particular issue. c. media campaigns are initiated by special interest groups to sway public opinion and subsequently legislators votes on issues. d. unrelated amendments are attached to pending legislation to secure its passage. 64 Chapter Two Questions and Exercises .
11. a. Defense outlay change: (693,586 / 294,362) – 1 = 135. Nondefense outlay change: (658.2 / 319.7) – 1 = 105. Defense prices: (1.1327 / 0.8147) – 1 = 39. Nondefense prices: (1.1256 / 0.89) – 1 = 26. Defense real: [(693,586 / 1.1327)/(294,362 / 0.8147)] – 1 = 69. Nondefense real: [(658.2 / 1.1256) / (319.7 / 0.89)] – 1 = 62. b. Deflator: 2000 = 1.00; 2010 = 1.1256 / 0.89 = 1. Nondefense outlay, real: 2000 = 319. Nondefense outlay, real: 2010 = 658.2 / 1.2647 = 520. Change (2005 = 1.00): 584.8 – 359.2 = 225. Change (2000 = 1.00): 520.4 – 319.7 = 200. Percent change (2000 = 1.00): (520.4 / 319.7) – 1 = 62.
12. Strategies: a. Spend to save b. All or nothing c. Matching the competition d. Cut the popular program e. Spend to save f. It’s the local economy g. It’s so small

h. Spend to save i. Washington Monument j. Crisis k. You pick l. Dire consequences m. Washington Monument n. Cut the popular programs o. Dire consequences

4. Hurricane damage, adjusted with GDP deflator: Damage, Constant Current Deflator, (Real) Dollars 2005 = 100 Damage Category Katrina 81000 100 81,000.00 3 Andrew 26500 76.598 34,596.20 5 Wilma 20600 100 20,600.00 3 Charley 15000 96.786 15,498.11 4 Ivan 15000 96.786 15,498.11 4 Rita 11300 100 11,300.00 3 Hugo 7000 69.577 10,060.80 4 Frances 8900 96.786 9,195.54 2 Agnes 2100 26.657 7,877.86 1 Jeanne 6900 96.786 7,129.13 3 Betsy 1421 19.936 7,127.81 3 Camille 1421 23.119 6,146.46 5 Allison 5000 90.727 5,511.04 0 Frederick 2300 43.798 5,251.38 3 Floyd 4500 86.842 5,181.82 2 Diane 832 16.601 5,011.75 1 Fran 3200 83.159 3,848.05 3 Opal 3000 81.606 3,676.20 3 Isabel 3370 94.135 3,579.96 2 Alicia 2000 57.652 3,469.09 3 Juan 1500 61.628 2,433.96 1 Dennis 2230 100 2,230.00 3 Elena 1250 61.628 2,028.30 3 Bob 1500 74.824 2,004.70 2 Gloria 900 61.628 1,460.38 3 Georges 1155 85.584 1,349.55 2 Lili 860 92.196 932.80 1 Bonnie 720 85.584 841.28 0 Erin 700 85.584 817.91 0 Allison 500 69.577 718.63 0

a. arguing that the program in question pays for itself.

b. linking the program to a crisis.

c. proposing that politically popular programs be cut first.

d. identifying and rallying a loyal clientele.

7. Use of modified accrual accounting:

a. eliminates the need for keeping track of encumbrances during budget

execution.

b. records expenditures when contractual payments are made.

c. records expenditures when materials are delivered.

d. requires immediate depreciation of all capital assets.

8. Which of the following would not be a

concern of a financial audit?

a. Whether the Department of Environment

Services actually spent the

$150,000 its reports say it did.

b. Whether the 700 gallons of gasoline purchased

by the Department were

actually delivered.

c. Whether the 14 street cleaners employed by

the Department could be

replaced by a motorized sweeper to save

$75,000 per year.

d. Whether permit fees collected by the

Department are remitted in their

entirety to the city Treasurer.

Chapter Three Questions and Exercises

1. The Office of Management and Budget website address is http://www.whitehouse.gov/omb/ a. Historical Tables: http://www.whitehouse.gov/omb/budget/Historicals/
2. The Budget of the United States Government is available on the OMB website at http://www.whitehouse.gov/omb/budget/Overview/ Examination Questions
3. Suppose that when he took office in January 2009, President Obama wanted to reduce the level of spending by the Drug Enforcement Administration during fiscal 2009. What budget procedure would allow him to do that?

a. He had no legal way of doing this. b. Executive transfers out of the Drug Enforcement Administration to the Department of Treasury Impoundment Fund c. A rescission approved by Congress d. None of the above

2. A continuing resolution enables an agency to: a. continue operations in a fiscal year, despite the fact that it overspent its appropriation for that fiscal year. b. continue operations in a fiscal year, despite the fact that it overspent its appropriation for the prior fiscal year. c. continue operations in a fiscal year, despite the fact that it has received no appropriation for that year. d. negotiate its appropriations between the House and the Senate.
3. Which of the following categories of federal government spending is the largest? a. Human resources b. Physical resources c. International (foreign) aid d. National defense
4. Which of the following is a means-tested entitlement program? a. Medicare b. Medicaid c. Social Security d. Temporary Assistance for Needy Families (TANF)
5. Which of the following is correct about the Government Accountability Office? a. It prepares budgets for executive agencies under the direction of the President. b. It reviews agency budget requests for the President. c. It prepares audits and evaluations for the President. d. It does not report to the President.
6. Which statement about federal mandatory spending is accurate? a. Because of its importance for the life of the nation, spending for the military is regarded as mandatory. b. Because appropriation bills must pass for agencies to continue operations, all spending that must go through the full appropriation cycle is considered mandatory. c. Spending for social security benefits is officially mandatory. d. Any public program with strong political support is seen as mandatory.
7. Which agency is responsible for external audit of federal departments and agencies? a. Congressional Budget Office (CBO) b. Government Accountability Office (GAO) c. U.S. Treasury Office of Fiscal Accounts (TOFA) d. Shared responsibility of all three

a. Prohibited the presidential impoundment of federal funds.

b. Strengthened the role of the President.

c. Shortened the time between presentation of the President’s budget and the start

of the fiscal year.

d. None of the above.

15. Which of the following best describes the Congressional Budget resolution?

a. The budget submitted by the President to Congress

b. The formal appropriation of funds to agencies

c. The reconciliation of committee appropriations

d. Budget priorities established by Congress

16. The consequences of legislation enacted to cancel budget authority previously provided by Congress before the time when the authority would otherwise lapse (i.e., cease to be available for obligation) is called:

a. impoundment.

b. deferral.

c. rescission.

d. sequestration

e. None of the above.

17. The most recent presidential budget that was presented to Congress with a planned surplus was presented by what President?

a. George W. Bush

b. Reagan

c. Nixon

d. Clinton

18. The growth of Federal government spending in the last 30 years is primarily due to:

a. defense spending.

b. interest on the debt.

c. transfer payments.

d. education.

19. The PAYGO budget requirement means:

a. that only programs generating revenues may be proposed for addition to the

executive budget.

b. that legislation that would increase entitlement spending must be accompanied

with an increase in revenue or reduction in spending sufficient to cover the new entitlement spending.

c. that debt refinancing must be approved by Congress.

d. that no tax reductions are permitted.

20. The Budget Control Act of 2011 did which of the following: a. Provided for a balanced federal budget by fiscal 2013. b. Established a PAYGO system for all federal tax and expenditure proposals.

th c. Increased the federal debt ceiling. d. Required that federal entitlement programs be reduced by 5 percent for the next three years.

21. The federal government operates under a debt limit. Which of these statements about that limit is correct? a. The limit is contained in the 14 amendment to the U. S. Constitution. b. The limit is adjusted upward by formula as the national economy increases because the burden of any amount of debt is less as the economic resources available to pay the debt is greater. c. The debt limit constrains the ability of the U. S. Treasury to borrow to pay obligations of the federal government but not the ability of government agencies to make purchases. d. The limit has not increased since the debt issued to finance the fighting of World War II was repaid. 64 Chapter Four Questions and Exercises No answers provided. Examination Questions
22. Which of the following statements about state budget processes is correct? a. All governors have item veto power. b. All states require biennial budgets. c. Not all states have budget messages prepared by the governor. d. States normally spend through systems of entitlements instead of appropriations.
23. The state of Alabama has legally earmarked around 85 percent of its state budget. This means that… a. In the annual appropriation process, members of the state legislature typically earmark particular locations in which spending will occur, thereby preventing administrative discretion in how appropriated funds get used. b. 85 percent of the money received for the state budget is allocated to particular uses in permanent law and is not subject to annual allocation by the legislature. c. Individuals may receive benefits from the state if they meet criteria established in the earmarking legislation. d. 85 percent of the budget is legally under control of the state legislature.

3. The largest expenditure category for local governments is:

a. Public safety

b. Primary and secondary education

2. Some questions about the memorandum: 1) The collection increase is about 50 percent, not 59 percent. 2) What are the separate contributions to numbers of calls from the automated phone system and from additional employees? Adding 10 employees is a 53 percent in staff, but calls increase by 100 percent. Can we assume that the remaining productivity increase is from the equipment? What would happen if either the new equipment or the new employees were added, but not both? 3) Doubling the number of calls represents a 100 percent increase in calls. Why is the yield increase so much less? Might most of the productive calls have already been made with the existing system/staff?
3. Grade Number Salary Total Salary Chief 1 $105,000 $105, Shift Commander 3 70,000 210, Firefighter 1 12 39,000 468, Firefighter 2 26 30,000 780, Clerical (part-time) 3 15,000 45, TOTAL 1,608, COST a. Salaries: 1,608, b. Social Security: Retirement: 0.062 x [1,608,000 – (105,000-90,000)] = 98, Medicare: 0.0145 x 1,608,000 = 23, c. Health Insurance: 180 x 12 x 42 = 90, d. Pension System: (1,608,000/2) x 0.20 = 160, e. Uniform Allowance: 750 x 42 = 31, Total: 2,013,
4. a. Price Change: Postage $5,500 requested to cover a postal rate increase of $0.02 per ounce for 275,000 items per year. b. Other Continuing: Travel $15,000 to cover travel expenditures that were accommodated by funds transfers in the last fiscal year. c. Workload Change: Personnel $56,625 in first year for new examiner (salary plus fringes) and $56,625 in second year for second new examiner (salary plus fringes) to accommodate assistance file growth.

d. Full Financing: $6,000 to external traffic fine collection program through entire fiscal year ($18,000 had been appropriated for three quarters of prior fiscal year). e. Methods Improvement: Equipment $3,000 to acquire PC-compatible computer, better quality printer, work processing software, and associated cables. (Insert whatever cost estimate seems proper.)

1. Quarter I (July – September Usage) Gallons: 125,000 + 125,000 + 90,000 = 340, Share of Total = 340/843 = 40.3% Quarter II (October – December) Gallons: 60,000 + 50,000 + 40,000 = 150, Share of Total: 150/843 = 17.8% Quarter III (January – March) Gallons: 35,000 + 35,000 + 50,000 = 120, Share of Total: 120/843 = 14.2% Quarter IV (April – June) Gallons: 65,000 + 68,000 + 100,000 = 233, Share of Total: 233/843 = 27.6% Allotments: Q1: 0.403 x 8,000,000 = 3,224, QII: 0.178 x 8,000,000 = 1,424, QIII: 0.142 x 8,000,000 = 1,136, QIV: 0.276 x 8,000,000 = 2,208,
2. The division has used up two-thirds of its travel account through the first three quarters of the year. Its operating plan requires that 40 percent of its budget be available to spend in the last quarter. Therefore, it has overspent its plan: $9, x .6 = $5,400 planned for the first three quarters; $2,500 + $3,500 = $6,000 actual for the first three quarters. The division will either need to restrain its travel in the last quarter or look for funds to transfer from other accounts to maintain travel at its planned fourth quarter level.
3. a. Questions: 1) What are: new social procedures, valid test results and scores, sociological recommendations, evaluation professionals, specialty counselors, great strides, maximum effectiveness, and success factors? Don’t use empty jargon. 2) What actually is being requested? What makes up a “counselor team” and where will the “teams” be located? 3) How did the case service funds for abused children get included in this request? That should be a separate request.

4. Is this really a workload change – or a program improvement? 5) What is the advantage of bringing together battered spouses? Explain. And why does this apparent objective require testing and special training? NOTE: As students start to get the idea, they will raise even more questions about the justification.

a. Break-even at $130 charge per participant 130x = 2,380 + 110x X = 119 b. $ c. Budget Conference facilities $1, AV rental 280 Materials and Marketing 550 Coffee breaks 3, Reception 2, Luncheon 2, Breakfasts 3, TOTAL $14, d. Raise select fees; tap contingency fund; freeze hiring/spending; delay capital investment or maintenance expenditures11. Revenues at average number of patrons: Ice time: (2.5) (1.5) (85,000) = 318, Skates: (1.5) (85,000) (.5) = 63, Total Revenue: 382, Costs at average number of patrons: Fixed costs: 94, Variable costs: (1.80) (85,000) (1.5) = 229, Total Costs: 324, Revenue exceeds costs by 58,500.

6. a. Real 2005 = 5,723 / 1. Real 2011 = 11,618 / 1.1524 = 10,081. Rate of Change = [(10,081.6 / 5,723)1/6] – 1 = 0. b. Rate of price change = (1.1524)1/6^ – 1 =. 11,618(1.0239)^4 = 12,
7. Alternative plans to be budgeted could include: (a) estimating the impact of the higher postage rate with nothing else changed; (b) estimating the cost at a non- profit organization postage rate; and (c) estimating the cost with conversion of the newsletter to a webpage or with email distribution.
8. 100 (1 + .0435) 4 = 118. Examination Questions

1. Which of the following can contribute toward a phantom balance in an operating budget? a. Transfer operating expenses to the capital budget. b. Accelerate payment of income tax refunds. c. Issue payroll checks on June 15 rather than June 20 (July 1 fiscal year start). d. Change the estimate of the property tax delinquency rate from 5 percent to 10 percent, to better reflect actual collection patterns.
2. Internal control standards do not include which of the following? a. Separation between operational transactions and accounting record keeping b. Maintain qualified personnel and rotate duties c. Use sequentially numbered receipt forms to acknowledge collections d. Require regular external audit
3. When justifying a budget request (in narrative form), which of the following is NOT recommended to be discussed: a. What you want to do b. Why you want to do it c. What resources will be necessary d. Technical calculations supporting the request
4. An allotment schedule is a. A mechanism to keep agency spending in line with the approved budget. b. A mechanism to reduce agency spending below its budget request. c. A timeline for the budget process. d. A division of fiscal duties between the House and the Senate.
5. The appropriation to the State Library System (fiscal year starts July 1) for fiscal 2012 was $15,000,000. On December 31, 2011, its budget reports showed expenditures of $7,500,000 and encumbrances outstanding of $500,000. Quarterly allotments were as follows: Q1—$3,750,000; Q2—$4,500,000; Q3—$3,750,000; and Q4—$3,000,000. What was the status of system operations at that point?

a. Operation consistent with plan; half the year elapsed and half the money spent.

b. Over plan by $250,000.

c. Under plan by $250,000.

d. Under plan by $750,000.

6. Which of the following is not a “rule of thumb” used by budget analysts in review of agency budgets?

a. Cut departments with “bad” reputations.

b. Compare proposed budget with prior year and current year budget and actual

expenditures to identify areas which may be reduced without great trouble.

c. Recommend repair and renovation rather than replacement of facilities.

d. None of the above; all are “rules of thumb.”

7. A requirement that the Governor’s operating budget be balanced usually

Provide for health, comfort, and well-being of citizens through information services, direct medical care, etc. Law Enforcement Provide enforcement of laws concerning abuse or neglect of children and elderly or disabled adults. (It is not clear whether the Department also enforces industrial safety laws.) Income Maintenance Provide income minimums for families unable to attain self-sufficiency.

2. The current classification is by object of expenditure. An alternative classification could organize around the principle missions of the university and many state universities focus on teaching (which may be further divided into undergraduate, graduate, non-degree, and professional training), research, and service (which may be divided between professional and interval). Measurable performance units would involve student credit hours taught, students enrolled, and student graduations. Outcomes would focus on placement success of graduates, change in earning and employments profiles of graduates, and results from satisfaction surveys given to recent graduates and more seasonal alumni. Success of the athletic teams would presumably not be on the record of the School of Public Affairs.
3. a. The measures appear to measure activities and not outcomes. b. Outcome measures would involve pollution levels in marine resources, data on marine safety (property and lives lost), and estimates of contraband entering the United States. c. Tough to know. Evidence on resource utilization trends might help. d. “Numbers game,” hints of “spend to save.” Examination Questions
4. An advantage of the traditional line item budget is a. Accountability and responsibility are easily assigned. b. Costs of defined activities are identified. c. The long timeframe allows for decision-making and planning. d. Appropriations are flexible to allow for achievement of desired outcomes.

2. Which of the following is not a problem associated with traditional line- item budgets?

a. The fallacy of appellation

b. Single-year cost orientation

c. Absence of program value measurement

d. Inability to control input usage

3. Performance budgets:

a. link performance objectives to requests for funds.

b. do not focus on measurable activities.

c. classify the budget by goals or objectives (e.g., Protection of Persons and

Property, Safe and Speedy Transportation).

d. None of the above.

4. Traditional line-item budgets:

a. focus attention on the value of public services provided.

b. require crosswalks to identify appropriations to agencies.

c. provide mechanisms for expenditure control.

d. estimate the costs of accomplishing measurable tasks or activities.

5. Which of the following is not a normal feature of program budgets?

a. Classify budget totals by goals, objectives, or missions.

b. May classify spending programs in categories that do not coincide with

organization chart structures.

c. Provide no expenditure data.

d. None of the above.

6. A feature that distinguishes a traditional performance budget from other budget classification structures is:

a. unit cost estimates for tasks or activities.

b. quantitative performance objectives for agencies and departments.

c. cost estimates for each agency.

d. measurement of worth of agency functions to society.

7. If economic efficiency is the primary goal in the budget process, the task of budget allocation should be to allocate funds:

a. so the number of winners exceeds the number of losers.

b. to ensure reelection and/or continue public support for programs.

c. among programs until one dollar moved to any program yields a return to

society greater than or equal to the loss from the program from which the dollar was removed.

d. to programs that produce the highest benefits.

8. The budget process which emphasizes the achievement of goals and competition between alternatives is: