Fiscal Accounting
Which one of the following should be categorized as below-the-line operations?
a. Receipt of grant by global aid community
b. Receipt of interest payments on loan extended to SOEs
c. Proceeds from selling government bond in the market
d. Receipts of social security contribution
c. Proceeds from selling government bond in the market
If the fiscal policy were to stabilize the macroeconomy, the fiscal impulse should be:
a. Positively correlated with the output gap
b. Uncorrelated with the output gap.
c. Negatively correlated with the output gap
d. It should be kept constant to avoid exacerbating the business cycle
c. Negatively correlated with the output gap
Which of the following is true?
a. Debt/GDP will keep rising if a country runs permanent primary deficits.
b. Debt/DDP will keep rising if a country face large interest payments on its debts.
c. Debt/GDP can decline in a country with permanent primary deficits as long as the growth rate is sufficiently higher than the interest rate
d. Solvency is satisfied since countries can always tax the residents to repay debts.
c. Debt/GDP can decline in a country with permanent primary deficits as long as the growth rate is sufficiently higher than the interest rate
Which one of the following corresponds to the discrete fiscal risks related to climate change?
a. Loss in tax revenue over time due to the gradual erosion of the tax base from climate policies
b. Large investment needs for public infrastructure for green transition
c. Contingent liabilities materializing as the result of a natural disaster (for example, a debt guarantee being called up after state-owned electricity company that lost its infrastructure due to a flood fails to service its debt)
d. Uncertainty in the size of revenue from carbon pricing schemes
c. Contingent liabilities materializing as the result of a natural disaster (for example, a debt guarantee being called up after state-owned electricity company that lost its infrastructure due to a flood fails to service its debt)
What is the main idea behind the concept of Automatic Stabilizers?
a. Flat personal income tax rates are effective in cushioning the impacts of a recession.
b. The public investment will cushion the impacts of a recession by boosting aggregate demand.
c. Progressive PIT system and social protection spending can cushion the impacts of a recession.
d. Expenditure should be cut back during the downturns to generate fiscal space for larger spending during the recovery phase.
c. Progressive PIT system and social protection spending can cushion the impacts of a recession.
Which one of the following statements best describes the structural fiscal balance?
a. It is an estimate of the fiscal balance that would apply under current policies if the output gap were zero.
b. It is an estimate of the fiscal balance that would apply under current policies after controlling for cyclical position and other economic conditions that affect fiscal revenue and expenditure (such as commodity prices fluctuation).
c. It is an estimate of the fiscal balance that is targeted in the fiscal rules.
d. It is an estimate of the fiscal balance that would prevail under constant inflation rates.
b. It is an estimate of the fiscal balance that would apply under current policies after controlling for cyclical position and other economic conditions that affect fiscal revenue and expenditure (such as commodity prices fluctuation).
When is the negative fiscal multiplier effects from fiscal consolidation is expected to be smaller?
a. When the economy is in recession
b. When the consolidation targets fiscal expense rather than public investment
c. When the central bank also tightens monetary policy
d. When the consolidation targets income transfer to poor households
b. When the consolidation targets fiscal expense rather than public investment
Which of the following is the core element of Debt Sustainability Analysis frameworks?
a. Rating of credit risks
b. Projection of public debt trajectory and those of indicators of debt burden
c. Assessment of the quality of Institution
d. projection of foreign reserves
b. Projection of public debt trajectory and those of indicators of debt burden
How is the elasticity of a tax computed?
a. As the percentage change in the tax revenue divided by the percentage change in the tax base.
b. As the percentage change of the tax revenue adjusted for the past tax reforms divided by the percentage change in the tax base.
c. As the percentage change in the tax revenue adjusted for cyclical conditions divided by the percentage change in the tax base.
d. As the percentage change in the tax revenue adjusted for economic agents' behavioral responses divided by the percentage change in the tax base.
b. As the percentage change of the tax revenue adjusted for the past tax reforms divided by the percentage change in the tax base.
Is there a short run and long run tradeoff in macroeconomic stabilization through sizable discretionary fiscal policy?
a. No, because short term macroeconomic stabilization would enhance long-term economic growth.
b. Yes, because expansionary fiscal policy to stabilize the economy in the short run increases fiscal deficits and debts, requiring larger financing in the future.
c. No, because the expansionary fiscal policy will be mostly financed by an increase in tax revenue during the economic recovery.
d. Yes, because large fiscal spending can send a signal to global investors that the country has weak fiscal discipline.
b. Yes, because expansionary fiscal policy to stabilize the economy in the short run increases fiscal deficits and debts, requiring larger financing in the future
Country X is a commodity exporter, and its fiscal revenue depends importantly on commodity exports. What is the relationship between its cyclically adjusted balance and its structural balance (which excludes the effect of commodity prices) during a large increase in global commodity prices (assuming that the economy is at its potential)?
a. The structural balance should be more deteriorated than the cyclically adjusted balance.
b. The structural balance should be less deteriorated than the cyclically adjusted balance.
c. The structural balance should be the same as the cyclically adjusted balance.
d. It is impossible to predict how the structural balance compares to the cyclically adjusted balance.
a. The structural balance should be more deteriorated than the cyclically adjusted balance.
Suppose the households is forward-looking and they think that public investment today unfunded by tax increases will be financed eventually by higher taxation in the future (Ricardian equivalence). In this case, the fiscal multiplier will be:
a. Larger than usual.
b. There should be no impact on the fiscal multiplier.
c. Smaller than usual.
d. Negative.
c. Smaller than usual
Suppose the initial debt-to-GDP ratio is 50 percent; the real interest rate is 8 percent; the real growth rate is 4 percent, and the primary surplus-to-GDP ratio is 1 percent. What will happen to the debt-to-GDP ratio over time?
a. It will explode.
b. It will stay at 50 percent.
c. It will shrink.
d. It will increase but then stabilize at a value above 50 percent.
a. It will explode
When a government decides to reduce its spending, it should:
a. Cut expenditure across the board (i.e., general cuts, by the same percentage) for the sake of clarity.
b. Protect core spending programs and eliminate specific inefficient programs.
c. Cut social safety nets, which are wasteful and excessive in most countries.
d. Replace targeted transfers with generalized subsidies.
b. Protect core spending programs and eliminate specific inefficient programs.
Why does the redistributive effect of fiscal policy need to be evaluated jointly, on both the revenue and expenditure sides?
a. Because taxes constitute a transfer from producers and/or consumers to the government.
b. Because fiscal policy affects the income distribution through both the progressivity of taxes and allocation of public expenditures.
c. Because public spending is more beneficial to the government than to producers or consumers.
d. Because while taxes increase income inequality, expenditures reduce it I don’t know.
b. Because fiscal policy affects the income distribution through both the progressivity of taxes and allocation of public expenditures.
The government delayed interest payments that were due in the fiscal year 2022 to fiscal year 2023. What is the consequence of such interest arrears on the fiscal balances in 2022 and 2023, compared to the case where the government honored the payments in 2022?
a. Under accrual-based accounting (GFSM2001/14), the fiscal balance in FY2022 improves while that of FY2023 deteriorates.
b. Under cash-based accounting (GFSM1986), the fiscal balance in FY2022 deteriorates while that of FY2023 improves.
c. Under accrual-based accounting (GFSM2001/14), the fiscal balances in FY2022 and FY2023 are unchanged.
d. Under cash-based accounting (GFSM1986), the fiscal balance in FY2022 and FY2023 are unchanged.
c. Under accrual-based accounting (GFSM2001/14), the fiscal balances in FY2022 and FY2023 are unchanged
Consider a small open economy with flexible exchange rate regime with perfect capital mobility. What is the expected size of multiplier from an increase in public expenditure not financed by tax increase?
a. Small because the increase in public expenditure will be partly offset by the decrease in exports.
b. Large because the increase in public expenditure will crowd in private investment.
c. Large because the central bank will need to prevent currency appreciation.
d. 1
a. Small because the increase in public expenditure will be partly offset by the decrease in exports.
Suppose the interest rate is below the real growth rate and the current debt ratio is below the target debt ratio. Furthermore, the primary surplus is at the level that stabilizes debt if the debt was at the target level. What can you say about the debt dynamics from this year to the next?
a. The debt ratio will increase.
b. The debt ratio will fall.
c. The debt ratio will stay constant.
d. The debt ratio will fall to zero.
b. The debt ratio will fall.
Suppose your tax revenue forecasts are such that buoyancy > elasticity of tax revenue to tax base. What does that tell you about the effectiveness of your tax system refroms?
a. They were effective in raising more tax revenue for a given increase in tax base.
b. They were detrimental to raising tax revenue for a given increase in tax base.
c. It cannot be inferred from this information.
d. The reforms reduced the distortion to the economy
a. They were effective in raising more tax revenue for a given increase in tax base.
Fiscal dominance may occur if:
a. Central bank's independence is guaranteed.
b. Government face large fiscal deficit partly due to large interest expenditure.
c. The economy is in liquidity trap.
d. The inflation pressure is high.
b. Government face large fiscal deficit partly due to large interest expenditure.