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WorksheetsChapter 3: Public Finance in Redistribution for Social Equality
Total questions: 79
Worksheet time: 40mins
Horizontal equity is best defined as:
Treating people with different abilities differently.
Treating people with the same economic status equally.
Ensuring outcomes are equal for all.
Redistributing income from rich to poor.
The Gini coefficient measures:
The poverty rate.
The degree of income inequality.
The average income level.
The unemployment rate.
According to the Second Fundamental Theorem of Welfare Economics, society can achieve any efficient point by:
Direct government intervention in production.
Redistributing initial endowments and allowing competitive markets.
Imposing price controls.
Nationalizing all industries.
The Maximin Criterion (Rawls) aims to maximize the welfare of:
The richest individual.
The average person.
The poorest individual.
Society's total utility.
Simple Utilitarianism suggests that social welfare is maximized when:
Total income is maximized.
The marginal utility of income is equal for all individuals.
The income of the poorest is maximized.
The Gini coefficient is zero.
The "leaky bucket" analogy by Okun illustrates:
The conflict between efficiency and equity.
The benefits of free trade.
The efficiency of markets.
The law of diminishing returns.
A poverty measure that accounts for both the incidence and depth of poverty is the:
Headcount index.
Poverty gap index.
Gini coefficient.
Lorenz curve.
Which of the following is NOT typically a cause of income inequality?
Differences in inherited wealth.
Differences in education and skills.
Pure luck or random chance.
A perfectly competitive labor market with perfect information.
The Human Poverty Index (HPI) focuses on deprivations in:
Income only.
Health, education, and living standards.
Political freedom only.
Asset ownership only.
A lump-sum cash transfer to the poor is likely to:
Cause a larger efficiency loss than an in-kind transfer.
Have only an income effect, not a substitution effect.
Always be less preferred by recipients than an in-kind transfer.
Discourage work effort more than a wage subsidy.
Vertical equity implies that:
Individuals with higher ability to pay should contribute more.
All individuals should pay the same amount of tax.
Taxes should not distort economic decisions.
The tax burden should be borne equally.
The Lorenz curve for a perfectly equal income distribution would be:
A straight 45-degree line.
A curve bowed severely towards the origin.
A vertical line.
A horizontal line.
Which theory of distribution is based on the idea of ensuring a minimum standard of living for all?
Utilitarianism
Rawlsianism
Socialist/Nonindividualist theory
Libertarianism
A key argument that there is NO conflict between efficiency and equity is:
Redistribution always reduces work incentives.
The marginal utility of income is higher for the poor.
Administrative costs of redistribution are negligible.
Markets always lead to fair outcomes.
The Poverty Gap Index improves upon the Headcount Index by:
Measuring the percentage of poor people.
Measuring how far, on average, the poor are from the poverty line.
Incorporating multidimensional aspects.
Using purchasing power parity.
An in-kind subsidy (like food stamps) might lead to higher utility than a cash subsidy if:
The recipient would have spent the cash on inferior goods.
The donor (society) values the consumption of that specific good more than the recipient's alternative choices.
The process of income redistribution may reduce efficiency due to:
Increased aggregate demand.
Deadweight loss from taxes and administrative costs.
Improved health and education of the poor.
Positive externalities from reduced crime.
Which measure is used to show the share of total income earned by each population quintile?
Theil Index
Income Percentiles
Kuznets Ratio
All of the above
According to the capability approach to poverty, poverty is primarily a lack of:
Cash income.
Freedom to achieve valuable functionings.
Basic material goods.
Political representation.
In a broad sense, public expenditure includes:
Only government budget outlays.
Government spending and private compliance costs with regulations.
Only transfer payments.
Only investment in infrastructure.
The primary role of public expenditure does NOT include:
Resource allocation.
Income redistribution.
Price setting in all markets.
Macroeconomic stabilization.
According to Wagner's Law, public spending tends to grow due to:
Decreasing costs of providing public services.
The increasing complexity of society and expanding state functions.
The "displacement effect" hypothesis by Peacock and Wiseman suggests public spending jumps during:
Periods of economic boom.
Periods of social upheaval (e.g., wars) and remains higher afterward.
Elections.
Technological revolutions.
In the Niskanen model, bureaucrats are assumed to maximize:
Social welfare.
The size of their agency's budget.
Their personal salary only.
Cost efficiency.
Public expenditure classified by purpose typically divides spending into:
Administrative, economic, and social.
Recurrent and capital (investment) expenditure.
Central, provincial, and local.
Cash and in-kind transfers.
The "Baumol effect" refers to the tendency for costs in the public sector to rise because:
Productivity growth is slower than in the private sector.
Bureaucrats are overpaid.
There is no competition.
Tax collection is inefficient.
A Public Expenditure Review (PER) aims to assess budgets from three angles: fiscal discipline, strategic prioritization, and:
Political popularity.
Cost-effectiveness.
Bureaucratic expansion.
International comparison.
A key principle in evaluating public expenditure is that it should be:
Based on short-term political cycles.
Implemented only at the budget execution stage.
Based on the entire budget cycle and long-term results.
Focused solely on minimizing costs.
Which method is commonly used in public expenditure appraisal?
Maximizing agency size.
Cost-Benefit Analysis.
Popular vote.
Historical incrementalism.
The trend of public expenditure as a percentage of GDP in developed countries over the 20th century has generally:
Decreased.
Remained constant.
Increased.
Fluctuated randomly.
Which factor does NOT typically influence the level of public spending?
Level of economic development.
Political institutions.
Random weather patterns.
Demographic changes.
Recurrent expenditures are characterized by being:
Large-scale investments in infrastructure.
Stable, regular, and consumptive in the short term.
Funded solely by foreign aid.
Always targeted at the poor.
The "dark side of public choice" theory suggests that majority voting can lead to:
Optimal provision of public goods.
Excessive spending on projects favored by the majority.
Minimal government.
Perfect equity.
Assessing the effectiveness of public expenditure focuses on:
Whether inputs were purchased at the lowest cost.
Whether the intended outcomes or goals were achieved.
Adherence to legal procedures.
The size of the budget.
Which classification of public expenditure is based on the function of government?
Recurrent vs. Capital
Administrative, Economic, Social, Other
Central vs. Local
Cash vs. In-kind
The "demand growth theory" for public spending attributes rising expenditures to:
Bureaucratic inefficiency only.
Rising incomes and technological change increasing demand for public services.
Taxpayer resistance.
Deflation.
In a cost-benefit analysis for a public project, a project is considered acceptable if:
The Benefit-Cost Ratio (B/C) is less than 1.
The Net Present Value (NPV) is positive.
It creates the most jobs.
It is favored by the ruling party.
A common challenge in Public Expenditure Reviews is:
Too much reliable data.
Accurately quantifying the benefits of public goods.
Lack of political will to spend.
Oversimplified methods.
The ultimate goal of public expenditure management is to:
Maximize the size of the public sector.
Achieve policy goals efficiently and effectively.
Minimize taxes at all costs.
Ensure all spending is recurrent.
Recurrent expenditures are primarily:
Long-term investments in infrastructure.
Short-term, consumptive, and regular operational costs.
One-time transfer payments.
Emergency disaster relief.
Which of the following is NOT a typical content of recurrent expenditure by domain?
Expenditure on state management.
Construction of a new highway.
Expenditure on national defense.
Transfer payments (subsidies).
The main method for evaluating and controlling recurrent expenditure is:
Cost-Benefit Analysis.
Using norms and budget estimates to minimize costs.
Public referendums.
Comparing with other countries.
A subsidy provided in cash with no conditions on how it is spent is called:
An in-kind subsidy.
A price subsidy.
A general (lump-sum) subsidy.
A tied subsidy.
An in-kind subsidy (e.g., free food) can sometimes lead to lower utility for the recipient compared to an equivalent cash subsidy because:
It allows more choice.
It may force consumption of a good beyond the point where the recipient's marginal valuation equals the cost.
It is always more efficient.
It has no income effect.
A price subsidy (e.g., on housing) creates both an income effect and a:
Scale effect.
Substitution effect, encouraging consumption of the subsidized good.
Negative externality.
Political effect.
The potential negative effect of unemployment benefits on work incentive is greatest when benefits are:
Very low and temporary.
High and subject to a 100% deduction (clawback) if any work income is earned.
Provided as job training.
Given as in-kind food assistance.
In the analysis of work–leisure choice, an unconditional cash grant shifts the budget line:
Parallel outward, increasing both potential income and leisure.
Pivoting outward, changing the wage rate.
Parallel inward.
Creating a kink at the grant level.
A subsidy that is "selective" or "means-tested" is based on:
General population criteria.
Specific conditions like income level or family status.
Political affiliation.
The recipient's consumption of a specific good.
Comparing a cash subsidy and an equivalent-value in-kind subsidy, if the recipient's consumption of the in-kind good under the cash subsidy would have been less than the provided amount, then:
The recipient is indifferent between the two.
The cash subsidy yields higher utility.
The in-kind subsidy yields higher utility from society's perspective if it values that good.
Both B and C can be true.
The "income effect" of a subsidy refers to:
The change in consumption due to the effective increase in purchasing power.
The change in consumption due to the change in relative prices.
The reduction in work hours.
The cost to the government.
Recurrent expenditures on "people" primarily include:
Salaries and wages of public employees.
Building maintenance.
Purchasing military equipment.
Interest payments on debt.
A common obstacle in evaluating transfer programs is:
Easily measurable long-term outcomes.
Accurately measuring recipients' true income.
Lack of political support for any evaluation.
The absence of any theoretical framework.
In Figure 5.9 (full deduction of earned income), the budget line becomes kinked because:
The wage rate increases after a threshold.
Earning any income makes the individual ineligible for the entire grant.
The grant amount increases with income.
Leisure becomes more expensive.
Partial deduction of earned income from a grant (e.g., 50% clawback) compared to full deduction tends to:
Eliminate work incentive completely.
Provide a stronger incentive to work some hours.
Have no effect on work decisions.
Be more costly to administer but have the same labor supply effect.
The primary goal of using norms in recurrent expenditure management is to ensure:
Maximization of outputs.
Cost minimization and control for given service levels.
Equity in distribution.
Rapid budget execution.
An example of a recurrent "transfer expense" is:
Building a school.
Paying a public school teacher's salary.
A welfare payment to low-income families.
Buying textbooks for a school.
The analysis in Figure 5.8 shows that a sufficiently high unconditional grant can lead an individual to choose:
Maximum work hours.
An interior solution with some work and some leisure.
Zero work hours (corner solution).
A higher wage rate.
From a pure efficiency standpoint (ignoring equity), the least distorting form of transfer is generally a:
Price subsidy for a specific necessity.
Conditional in-kind transfer.
Lump-sum cash transfer.
Wage subsidy.
Despite potential efficiency costs, societies use various transfer programs primarily to pursue goals of:
Economic efficiency only.
Equity and social justice.
Maximizing GDP growth.
Minimizing government size.
Public investment expenditure is characterized by:
Being consumptive and short-term.
Having a cumulative (long-lasting) effect on the economy.
Covering only government salaries.
Having no crowding-out effect.
Which of the following is typically a content of public development investment?
Salaries for government officials.
Building socio-economic infrastructure (roads, ports).
Monthly welfare payments.
Routine office supplies.
The optimal total scale of public investment is determined at the point where:
The marginal net benefit of public investment equals zero.
The marginal net benefit of public investment equals the marginal net benefit of private investment.
The total cost of public investment is minimized.
The political support for investment is maximized.
In cost-benefit analysis for public projects, a project is considered acceptable from an efficiency standpoint if:
The Benefit-Cost Ratio (B/C) is greater than 1.
It creates the most jobs.
It is the cheapest option.
It uses domestic contractors.
The shadow price for unemployed labor used in a public project's economic analysis is often based on:
The market wage rate.
Zero, because they are unemployed.
The minimum wage or unemployment benefits.
The wage rate in a foreign country.
When allocating a fixed budget among indivisible (lump-sum) projects, which rule prioritizes projects with the highest benefit-cost ratio?
Maximize total net benefits.
Maximize total benefits.
Select projects in descending order of B/C ratio until the budget is exhausted.
Minimize the unused budget.
The "crowding-out effect" of public investment refers to:
Increased private investment due to complementary infrastructure.
Reduced private investment due to higher interest rates or resource competition.
The displacement of recurrent expenditure.
The positive externality on neighboring regions.
In economic appraisal, the appropriate price to use for inputs and outputs is the:
Financial market price.
Economic price (shadow price), adjusting for market distortions.
Historical cost.
Price set by the implementing agency.
Which of the following is a "sunk cost" and should be excluded from project appraisal?
Future operating costs.
Costs already incurred in a feasibility study, regardless of the project decision.
The opportunity cost of land.
Environmental cleanup costs.
The discount rate for public projects is controversial. One view suggests it should be the:
Government's borrowing rate.
Marginal productivity of capital in the private sector.
Inflation rate.
Zero, because the government has infinite resources.
The Net Present Value (NPV) of a project is calculated as:
Total Benefits / Total Costs.
Present Value of Benefits - Present Value of Costs.
(Benefits - Costs) / Costs.
The payback period.
For public projects, benefits and costs should be measured based on:
Accounting profits.
Incremental cash flows (with-project vs. without-project).
Tax revenues generated.
Budget allocations.
The principle of "minimizing costs" for a given output is often applied through:
Benefit-Cost Analysis.
Competitive bidding processes.
Political negotiation.
Historical budget comparisons.
Intangible benefits of a public project (e.g., value of a life saved) are often estimated by:
Ignoring them completely.
The willingness-to-pay method or foregone earnings.
The cost of the project itself.
Public opinion polls.
When projects are mutually exclusive, the preferred selection criterion is usually:
The project with the highest B/C ratio.
The project with the largest positive NPV.
The project with the shortest payback period.
The project favored by local leaders.
A key difference between appraising public and private projects is that public project appraisal must consider:
Only financial profitability.
Economic efficiency, income distribution, and social objectives.
Shareholder value maximization only.
Short-term returns.
The "Rule 2" for selecting projects under a fixed budget (choose the combination with the highest total net benefit) may not select the set with the highest B/C ratios because:
It ignores costs.
It may include a large, moderately efficient project that uses up budget but adds significant net benefit.
It always minimizes unused budget.
It is mathematically equivalent to Rule 1.
In Figure 6.1, the intersection point D of the NBx and NBy curves signifies:
All capital should go to the public sector.
All capital should go to the private sector.
The optimal division of capital between public and private sectors to maximize total net benefit.
The point of minimum total net benefit.
When calculating the economic benefits of an irrigation project, the increase in social welfare can be measured by the increase in:
Government tax revenue only.
Producer and consumer surplus in the agricultural market.
The project's construction costs.
Land prices only (which is a transfer).
Sensitivity analysis in project appraisal is used to:
Determine the exact NPV.
Test how the project's viability changes with variations in key assumptions (e.g., discount rate, costs).
Identify the project's legal requirements.
Calculate the B/C ratio.
