1. True or False. Write TR if the statement is true and FL if the statement is false. (1 point each item)

___ 1. An integral part of budget accountability is the evaluation of the financial and physical performance of the LGU. This review and assessment of performance is necessary to introduce improvements and reforms to make the budget more transparent to the people and stakeholders.

___ 2. There are 5 phases in the budget process these are: 1. Quarterly Report of Income 2. Quarterly Financial Report of Operations 3. Quarterly Physical Report of Operations 4. Statement of Receipts and Expenditures 5. Physical and Financial Performance Evaluation Form.

___ 3. Every year, the budget would start from the beginning, from the Zero base, estimating new spending and revenues, and new programs. Thus, the effects from the past years will be forwarded and considered at the current year budget.

___ 4. Budget execution is the last phase in the Local Budget Process.

___ 5. Budget preparation phase involves cost estimation per PPA, preparation of budget proposals, executive review of budget proposals, and preparation of the LEP and the Budget Message and it is the second phase of the budget process.

___ 6. The primary purpose of budget review is to determine whether the Appropriation Ordinance has complied with the budgetary requirements and general limitations set forth in the Local Government Code of 1991, as well as provisions of other applicable laws.

___ 7. Traditional Budget It is also called "Line-item budget" in which expenditures and money allocation are made on an administrative-department basis, not on the basis of what departments really want to achieve. This kind is most used in many developing countries.

___ 8. Performance Budget focuses on the results or outcomes of an agency and not on how the activity/project would be performed.

___ 9. The expenditures and money allocation in the Performance Budget is determined based on how the activity/project would be performed in which information should be organized in terms of activities.

___ 10. Budget Authorization is the second phase in the local budget process. This phase starts from the time the Sanggunian receives the Local Expenditure Program (LEP) submitted by the LCE, and ends with the enactment of the Appropriation Ordinance and approval thereof by the LCE.

___ 11. Budget accountability does not cover the monitoring and analysis of all financial transactions, the recording of budgetary accounts in the registries, recording in the books of accounts of all receipts and expenditures and financial reporting of their current status.

___ 12. The execution of the budget involves the release of allotments, the certification of available appropriations and cash, the recording of actual obligations and disbursements of funds for approved PPAs and the delivery of goods and services to target clients in the most efficient, effective, economical and ethical way.

___ 13. The major idea of program budget is how the specific program would achieve the public objectives regardless of what the agency would perform this program.

SPli}.3 Transfer pricing Due to the expansion of business in Cogoland in recent years, SR Products has set up a marketing division there responsible for selling a new product. The head ofce and manufacnning plant remain in the United States. The company has estimated that the total cost of manufacturing in the USA and the cost of transportation of the product is given by the function: :3 =Q2+20Q+4 {10.151 where C = total cost per week in $ and (,1: units sold \"Ibis cost appears in the accounts of the manufacturing division. The total cost for the marketing division in Cogoland is given by: c =Q2+ 14Q+20 {10.151 \"Ibis includes the $111: per unit which is the transfer price paid by the marketing division to the manufacturing division. This total cost appears in the accounts of the marketing division. The revenue mction for the marketing division is estimated as: R = 50011 sq2 (10.1?) where R = total revenue per week in $. EL Calculate the optimal policy for the company as a whole. showing the price, output and overall prots of the rm. b. Calculate the optimal policies for the marketing division and the manufacturing divisions. assuming a transfer price of 51m. showing the overall prot of the rm in each case. c. Calculate the optimal transfer price in order to make the optimal policies for both divisions the same as that for the company as a whole. d What does the above situation imply regarding managerial strategy? As with all pricingproblems discussed so far. the problemcan be analysed either graphically or algebraically. In this case an algebraic approach will be used. Question 3: The Closed-Economy IS-LM-FE Framework (25 Marks) Consider the following closed economy: Odd = 150 - 400r + 0.6(Y - T) 1= 200 - 200m Government purchases, G equal 100 and the government runs a balanced budget. The liquidity function is given by: L(Y, i) = 200 + 0.2Y - 5002 The nominal money supply, price level and expected inflation are: M = 100 P - 5 IT = 0.05 (a) Derive the /S curve with the real interest rate r as a function of output Y. (b) Derive the LM curve with the real interest rate r as a function of output Y for the given price level, P = 5. (c) Find the long-run equilibrium values of the real interest rate r, full employment output, Y', consump- tion C. and investment /. Illustrate the results using a IS - LM - FE diagram to depict the long-run equilibrium. (d) Imagine that a financial innovation reduces the demand for real money balances so that the new liquidity function is: L(Y. () = 100 + 0.2Y - 500 i) Find the short-run equilibrium values of Y and r (when the price level is fixed). ii) What will happen to r. Y', P as the economy moves towards a long run equilibrium? You do not need to solve for the new values, please just describe whether they will increase, decrease or stay the same relative to the short run equilibrium in part i). ifi) Illustrate the short and long-run equilibria using an IS - LM - FE diagram