____1. The Correspondence Principle says:

a. Every tax that is collected should have a corresponding fund in the government budget.

b. Governments who provide the public good or service should be funded by those who consume the good.

c. Governmental responsibility for a function should be provided at the highest level of government that can deliver the function effectively.

d. When one city creates a good public service, other cities will follow.

_____2. Which of the following is not a characteristic of a capital expenditure, for the purposes of government budgeting?

a. recurring nature

b. large price tag

c. long life

d. none of the above

____3. The Principle of Subsidiarity says:

a. Government should only collect enough revenues for basic subsistence.

b. Governmental responsibility for a function should be provided at the lowest level of government that can deliver the function effectively.

c. Governmental responsibility for a function should be provided at the highest level of government that can deliver the function effectively.

d. Agricultural goods should be taxed at a different rate than industrial goods.

_____4. Which of the following would be a reasonable component of a state capital budget?

a. The salaries of the state planning agencies, because the impact of their efforts endures for many years.

b. The cost of recurring purchases of motor vehicles.

c. The cost of a new chair in the governors office.

d. None of the above.

_____5. Municipal debt ratings:

a. are prepared by state audit agencies.

b. are opinions prepared by private firms about the likelihood that municipal borrowers will repay debt principal and pay interest when due.

c. estimate how well cities have responded to citizen demand for government services.

d. are not used for serial bonds.

_____6. Why are state and local governments unable to carry large levels of debt?

a. They are constrained by their economic capacity to service their debt.

b. They cannot levy income taxes.

c. They all have upper limit restrictions on the rate at which they can tax.

d. Federal legislation prohibits it, because federal funds will ultimately have to finance a state or municipal bail out.

_____7. In March 1982, Moodys lowered its rating for City of Indianapolis debt from Aaa to Aa. Which of the following would result from that change?

a. The interest that Indianapolis has to pay on debt issued before the rating change will increase.

b. The interest rate that Indianapolis can expect to pay on new debt issues will rise.

c. The interest paid by Indianapolis will no longer be excluded from federal income taxes.

d. The new speculative rating means that banks must clear their investment portfolios of this debt.

_____8. A municipal bond underwriter performs what function?

a. Purchases bonds from the municipal issuer for sale to investors.

b. Evaluates projects proposed for city expenditures.

c. Guarantees that municipal borrowers make principal or interest payments on schedule.

d. None of the above.

_____9. Municipal bonds with a serial component are sold on the basis of coupon bids. Bids may be evaluated according to either net interest cost or true interest cost. Evaluations should use true interest cost because:

a. it is easier to compute.

b. net interest cost leads to biased choices when bond issues are large.

c. true interest cost recognizes the time value of money.

d. None of the above.

_____10. A municipal bond issue has a serial component when:

a. holders of the bonds must report the serial numbers of the bonds to the Internal Revenue Service (also called registered bonds).

b. tax revenues are pledged for repayment.

c. the issue has bonds of varying terms to maturity.

d. only a single coupon rate will be paid.