Questions and Answers of Public Finance A contemporary Application

Which of the following statements regarding a country’s political cooperation is most accurate?A. If a country is engaged in military conflict, there is a higher cost to cooperation.B. A country
True or false: Geographic factors do not influence the extent to which a country will choose a cooperative approach. Explain your reasoning.A. TrueB. False
A consequence of one of the disadvantages of globalization is that:A. pay differences between countries have narrowed.B. emerging market trade flows have grown more important.C. greater economic and
Fill in the blank: Two factors on which a cooperative country is likely focused include____ and___.
Which of the following outcomes is most likely a result of globalization?A. Unequal gainsB. Increased independenceC. Decreased access to talent
True or false: The length of a country’s political cycle does not affect its priority designation. Explain your reasoning.A. TrueB. False
A US company expanding critical spare part inventories for local customers made at its existing Canadian facility after a supply chain disruption is most likely using the coping tactic of:A.
Fill in the blanks using the following words: government; private sector; national; subnational. Although political cooperation and non-cooperation can be driven by____ actors, globalization as the
An example of a geopolitical multifaceted tool for furthering national interests is:A. cabotage.B. armed conflict.C. nationalization of key export industries.
True or False: Globalization is primarily carried out by governmental actors. Explain your reasoning.A. TrueB. False
True or false: The relative permanence of geographic factors implies a fundamental stability in geopolitical risk analysis of the involved parties. Explain your selection.A. True
Exogenous risks are best described as those that:A. are known and evolve and expand over a period of time.B. revolve around set dates, such as elections, new legislation, or other date-driven
Identify at least two of the factors accounting for Singapore’s reliance on globalization to achieve economic success.
Which of the following statements about geopolitical threats in the investment environment is most accurate?A. Geopolitical risk is not always present in the investment environment.B. Highly
True or false: Although geopolitical financial tools can be used for both cooperative and non-cooperative reasons, national security tools are characteristically non-cooperative. Explain your
Describe the conditions under which cooperative financial tools may decrease geopolitical risk as well as create vulnerabilities in the international system.
An applicable conclusion drawn from the Geopolitical Risk Index (GPR) is that:A. high geopolitical risk results in tangible macroeconomic effects.B. recurring geopolitical risk events lead to reduced
Which of the following types of risks are known in advance? Select all that apply.A. Event riskB. Exogenous riskC. Thematic risk
Match the potential velocity of a geopolitical risk with the most likely investor reaction among those listed in the following table: Geopolitical Risk Velocity 1. Low 2. Medium 3. High Investor
The basic geopolitical risk type most likely in comparison to have the smallest degree of uncertainty is:A. exogenous risk.B. event risk.C. thematic risk.
Describe the three areas that an investor should consider when assessing geopolitical risk.
True or false: The probability and impact of geopolitical risks influence relative asset price discount rates across emerging and developed markets. Explain your selection.A. TrueB. False
South Africa manufactures 110,000 tons of paper. However, domestic demand for paper is 200,000 tons. The world price for paper is USD5.00 per ton. South Africa will import 90,000 tons of paper from
Which of the following statements best describes the benefits of international trade?A. Countries gain from exchange and specialization.B. Countries receive lower prices for their exports and pay
Thailand, a small country, has to decide whether to impose a tariff or a quota on the import of computers. You are considering investing in a local firm that is a major importer of computers. 1.
Which of the following statements best describes the costs of international trade?A. Countries without an absolute advantage in producing a good cannot benefit significantly from international
1. Chile and Australia have a free trade with each other but have separate trade barriers on imports from other countries. Chile and Australia are a part of a(n):A. FTA.B. economic
Suppose the cost of producing tea relative to copper is lower in Tealand than in Copperland. With trade, the copper industry in Copperland would most likely:A. expand.B. contract.C. remain stable.
Which type of trade restriction would most likely increase domestic government revenue?A. TariffB. Import quotaC. Export subsidy
Which of the following trade restrictions is likely to result in the greatest welfare loss for the importing country?A. A tariffB. An import quotaC. A voluntary export restraint
A large country can:A. benefit by imposing a tariff.B. benefit with an export subsidy.C. not benefit from any trade restriction.
If Brazil and South Africa have free trade with each other, a common trade policy against all other countries, but no free movement of factors of production between them, then Brazil and South Africa
Which of the following factors best explains why regional trading agreements are more popular than larger multilateral trade agreements?A. Minimal displacement costsB. Trade diversions benefit
What will be the effect on a direct exchange rate quote if the domestic currency appreciates?A. IncreaseB. DecreaseC. No change
The investment adviser based in Sydney, Australia, makes the following statements to her client when describing some of the basic characteristics of the FX market:Statement 1 “FX transactions for
An executive from Switzerland checks into a hotel room in Spain and is told by the manager that EUR1 will buy CHF1.2983. From the executive’s perspective, an indirect exchange rate quote would
A dealer based in New York City provides a spot exchange rate quote of 18.8590 MXN/USD to a client in Mexico City. The inverse of 18.8590 is 0.0530. 1. From the perspective of the Mexican client,
Over the past month, the Swiss franc (CHF) has depreciated 12 percent against the British pound (GBP). How much has the pound sterling appreciated against the Swiss franc? A. 12 percent B. Less
After the devaluation of the Thai baht in July 1997, Southeast Asia suffered from significant capital outflows that led to falling local equity and real estate prices and declining exchange rates. To
An exchange rate between two currencies has increased to 1.4500. If the base currency has appreciated by 8 percent against the price currency, the initial exchange rate between the two currencies was
The spot ZAR/HKD cross-rate is closest to:A. 0.9205.B. 1.0864.C. 1.2978.A dealer provides spot rate quotes for the following currencies: Currency CNY/HKD CNY/ZAR CNY/SEK Spot rate 0.8422 0.9149 1.0218
Another dealer is quoting the ZAR/SEK cross-rate at 1.1210. The arbitrage profit that can be earned is closest to:A. ZAR3671 per million Swedish krona traded.B. SEK4200 per million South African rand
A BRL/MXN spot rate is listed by a dealer at 0.1378. The six-month forward rate is 0.14193. The six-month forward points are closest to:A. –41.3.B. +41.3.C. +299.7.
A three-month forward exchange rate in CAD/USD is listed by a dealer at 1.0123.The dealer also quotes three-month forward points as a percentage at 6.8 percent. The CAD/USD spot rate is closest to:A.
If the base currency in a forward exchange rate quote is trading at a forward discount, which of the following statements is most accurate?A. The forward points will be positive.B. The forward
A forward premium indicates:A. an expected increase in demand for the base currency.B. the interest rate is higher in the base currency than in the price currency.C. the interest rate is higher in
The JPY/AUD spot exchange rate is 82.42, the Japanese yen interest rate is 0.15 percent, and the Australian dollar interest rate is 4.95 percent. If the interest rates are quoted on the basis of a
In 1991 the federal government imposed a 10% “luxury tax” on sales of new recreational boats and on certain other high-priced consumer goods. Sales of new recreational boats plummeted, causing
Opinions differ about the appropriate level of total government spending. State if you think that the total size of government (federal, state, or local) should increase or decrease. Use Figure 1.1
Explain the compensation criterion of Kaldor and Hicks. How do they justify income redistribution? Use different points on Figure 2.5 to explain their conclusion.Figure 2.5 A Utility-Possibility
National defense is a pure public good. Yet members of the public disagree about the appropriate size of the Defense Department. Use a diagram similar to Figure 4.6 to find the appropriate amount of
Suppose the price of hiring a security guard increases from $450 to $600 per week. Using the data in Table 4.2, show how this will affect the Lindahl equilibrium.Table 4.2
Use the data in Table 4.2 to show how a decrease in the demand for security protection by any one voter will affect the Lindahl equilibrium. Table 4.2
Using the data in Table 5.1, show that the median most-preferred outcome will defeat any other alternative in elections decided by majority rule.Table 5.1 Voters Results ABCMFGH А 1 INCREASE
Suppose the positions of political candidates on all issues can be ranked on a scale of conservative to liberal. The more conservative a candidate, the less the quantity of public goods he will
Use Figure 5.2 to show how an increase in weekly wages of security guards to $420 will affect the most-preferred outcome of each voter and the political equilibrium under majority rule.Figure 5.2
Within a nation, an enormous spectrum of voters’ different opinions can be found. Yet every four years, the major party presidential candidates offer similar (if not identical) positions on many
How are health care expenditures financed in the United States?
What is the role of governments in providing health insurance and financing health care in the United States?
What are third-party payments and how do they result in an overallocation of resources to the provision of health care?
There is a concern that government funding to extend health insurance to the currently uninsured would increase cost per visit. Re-draw Figure 9.3. Explain this problem. Why is an economy of scale
What are capitation payments? How can capitation payments of HMOs help control health care spending?
Discuss some of the major aspects of the Medicaid and Medicare systems and techniques used by these programs to control government health care spending in recent years.
Give one method used by U.S. private health insurance companies to encourage their policy holders to make fewer visits to their doctor. Explain why this method has worked to reduce doctor visits,
Under what circumstances might a medical patient find the Canadian health system preferable to the system in the United States? Conversely, defenders of the American health care system identify
How does government finance affect both political and market equilibrium?
How does the ability-to-pay principle of taxation differ from the benefit principle? What problems are encountered in implementing both these tax philosophies?
A tax rate schedule for the federal income tax is usually included with its instruction packet. Identify the MTRs associated with each tax bracket. Plot the MTRs associated with the taxable income in
Savings account wealth is owned by the general population more unequally than income wealth. If government prints money to fund expenditures and creates inflation for only one year of 10%, is this
What is a flat-rate tax? Plot the MTRs and ATRs associated with a flat-rate tax of five percent on sales.
A state lottery uses 35% of lottery ticket revenue for prizes, 15% for administrative and retail costs, and 50% of ticket sales revenue for general state government expenditures. Lottery ticket
How can inflation be viewed as a form of taxation?
List alternatives to taxation as a means of financing government expenditures. Give an example for each alternative.
What are user charges? How can user charges be used to both finance government-supplied services and ration their use? How can user charges help achieve efficiency for consumption of
In the late 1960s and 1970s, many prominent economists recommended the elimination of the military draft. The draft allowed the government to set military wages below comparable market salary rates.
Explain the benefit principle for selecting a method of taxation. Is the benefit principle more likely to be followed if a tax structure is regressive, proportional, or progressive? Create an example
Explain why lump-sum taxes will not cause any losses in efficiency. Are lump-sum taxes feasible? Lump-sum taxes do not result in substitution effects, but they do affect prices. Is this a
Suppose 90 percent of the net federal debt was acquired by foreign investors. How would this affect the burden of the debt for U.S. citizens?
Why is the actual net liability of the federal government much less than the gross public debt? How do increases in market rates of interest and increased inflation affect the burden of the debt?
How can deficit finance influence political equilibrium? Has deficit finance been associated with increased federal investment in the United States?
Why is repayment of state and local government debt more likely to drain purchasing power from citizens of state and local governments?
In what sense does the use of debt financing by a national government impose a burden on the future generation? How does debt financing increase the “wealth” of the current generation compared
What is comprehensive income, and how is it related to an individual’s command over resources? Explain how income can be measured from either the sources or the uses side.
Why would a comprehensive income tax eliminate the need for a separate tax on corporate income?
Why is income-in-kind often excluded from income in implementing an income tax? What are some major forms of income-in-kind, and what are the economic consequences of excluding such items from
What distortions are introduced by a general tax on comprehensive income that taxes all income regardless of its source or use?
What is the major source of income in the United States?
How does a proportional income tax introduce a wedge between the gross wage paid by employers and the net wage received by workers? Explain how this tax wedge results in efficiency losses in labor
Why must the substitution effect be separated from the income effect of tax-induced wage reductions to measure the excess burden of a comprehensive tax on labor income? Draw a graph that shows how
What is the consequence of a highly responsive supply of labor hours for the excess burden of an income tax on wages? Show that a low elasticity implies that workers bear most of the income tax on
What are the major types of income excluded from gross income? Why are certain items excluded from AGI, even though they qualify as income under the Haig-Simons definition?
What are tax preferences? What are major justifications for tax preferences? What are the economic consequences of tax preferences?
What are tax expenditures? How can tax expenditures be used to evaluate the desirability of tax preferences? Why do tax expenditures overestimate the gains in revenue that would come about from
What are the major tax deductions from AGI that are allowed in computing taxable income? What are the economic justifications and consequences of allowing such deductions?
The EGTRRA of 2001 sharply reduced MTRs for most taxpayers. Explain why this reduces the excess burden of tax preferences.
What is bracket creep? How can indexation of tax brackets, the standard deduction, and the personal exemption eliminate bracket creep?
How is business income measured? How can the tax rules for calculating taxable business income affect incentives to invest?
What is the “equity” of a corporation? Assuming that a corporation has $5 million in equity and that shareholders forgo a return of 9 percent by keeping their equity in the corporation, calculate
Explain how corporate income could be taxed under a comprehensive income tax without recourse to a corporate income tax. How can separate taxation of corporate income be justified? Given the
Why do economists argue that the tax definition of corporate profits overstates the true profits of corporations? How can this misdefinition of profit affect the financial structure of the

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