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Download Public Finance in Canada Canadian 5th Edition Rosen Test Bank all chapters
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) When the federal government gives a grant to a provincial government without restrictions on use,
this is known as
A) a conditional grant. B) an endowment.
C) revenue sharing. D) an unconditional grant.
Answer: D
2) The federal government and provinces committed to reducing regional economic disparities in the
A) Canadian Bill of Rights, 1960. B) Constitution Act, 1982.
C) War Measures Act, 1914. D) British North America Act, 1867.
Answer: B
6) Over the last 100 years, the level of government that has seen the largest increase in its percentage
of expenditures is
A) federal. B) local.
C) provincial. D) all of these answer options are correct.
Answer: C
7) The ________ measures the dollar cost of the incremental congestion created by each new member
to a community.
A) marginal cost of public funds B) marginal congestion cost
C) club membership fee D) community tax
Answer: B
8) When did federal transfers as a percentage of provincial and local expenditures reach its peak?
A) 1960s B) 1970s C) 1980s D) 1990s
Answer: A
1
9) Net fiscal benefits are
A) the value of publicly provided services minus their cost to the recipient of those services.
B) an economic theory and not present in the real world.
C) when government action is not required to achieve efficiency.
D) all of these answers are correct.
Answer: A
12) More than half of federal grant outlays go for programs relating to post-secondary education, health,
and ________.
A) defence B) social assistance C) international aid D) roads
Answer: B
13) The largest share of expenditures on health are made by the ________ government(s).
A) state B) provincial, territorial, and local
C) provisional D) federal
Answer: B
16) ________ explores the functions undertaken by different levels of government and the ways in
which they relate to each other.
A) Federal system B) Centralization C) Decentralization D) Fiscal federalism
Answer: D
2
17) Formost federations almost all macroeconomic stabilization comes from governments actively
adjusting taxation and spending levels to smooth out slumps and booms.
A) True B) False C) Uncertain
Answer: B
18) The Tiebout model assumes that public services are financed by a proportional property tax.
A) True B) False C) Uncertain
Answer: A
19) A migration response to differences in net fiscal benefits is called fiscally induced migration.
A) True B) False C) Uncertain
Answer: A
20) The flypaper effect causes money to move from the sector it initially hits to stick somewhere else.
A) True B) False C) Uncertain
Answer: B
21) The Tiebout model can be summarized as individuals voting with their hands.
A) True B) False C) Uncertain
Answer: B
22) Equalization is the main program to address fiscal disparities across provinces in Canada.
A) True B) False C) Uncertain
Answer: A
23) A federal system consists of one level of government to provide public goods and services.
A) True B) False C) Uncertain
Answer: B
25) TheCanada Health Transfer (CHT) and Canada Social Transfer (CST) are matching conditional
grants.
A) True B) False C) Uncertain
Answer: B
26) Federal
transfers as a percentage of federal expenditures are higher now than in the postwar (post
World War II) period.
A) True B) False C) Uncertain
Answer: A
3
27) Theshare of total government expenditures made by subnational governments is called the
expenditure centralization ratio.
A) True B) False C) Uncertain
Answer: B
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
29) Refer to
the figure below that illustrates a matching grant. Suppose that there is a change to a closed-ended
matching grant. Modify the figure below to reflect the change from a matching grant to a closed-end matching
grant.
4
30) Refer tothe figure below. Suppose that the initial budget constraint AB is given by the equation G =
150 - c/5, where G is the units of public good and c is consumption. A closed-ended matching grant
up to 100 units of public good is proposed. If the slope of line segment AD is -2, write the equation
of the new budget constraint after a closed-ended matching grant.
Answer: For quantities of G between 0 and 100, the equation of the line is G = 375 - c/2. Using this
equation at G = 100 units, c would be 550. In the original equation, G = 100 units give c to be
250, which is a difference of 300. Therefore, from the kink at D, the equation is G = 210 - c/5
from 100 to 210.
31) Discuss
the disadvantages of a decentralized system. If you were making a recommendations to the
government, what are some of the potential issues of a decentralized system you would identify?
Answer: Equity issues involve intercommunity migration and the potential failure of redistributive
programs. Efficiency concerns are related to externalities, scale economies in the provision of
public goods and tax collection, and inefficient tax systems. Communities impose externalities
(both positive and negative) on each other. If each community only cares about its own
citizens, then these externalities are not taken into account.
32) TheTiebout model offers a quasi-market solution to public good production and community
development. What are some drawbacks to this model?
Answer: Some of the assumptions of the model are rather strong. Assuming that each individual has
perfect information about all communities, taxes, and services is rather strong. In addition,
assuming that there are enough communities for each individual's preferences for a package of
public goods is tough.
5
33) Why isthe Tiebout model not a perfect description of the real world? Despite this fact, why does the
model perform well, and why is it considered a good depiction of reality?
Answer: People are not perfectly mobile; there are probably not enough communities so that each family can
find one with a bundle of services that suits it perfectly. There is also asymmetric information, etc.
There is a lot of mobility in the Canadian economy, there are lots of choices of communities to locate in
and the Tiebout hypothesis performs well when empirically tested.
34) Equalization is the main vehicle for addressing fiscal disparities across provincial governments.
Briefly describe the adjustments introduced to the program in Budget 2007. Do you think these
changes to the equalization program were a good idea? Why or why not?
Answer: Payments are based on a formula. Changes included a fiscal capacity cap, only 50 percent of natural
resource revenues being included, and a ceiling on annual growth in total payments. The formula for
calculating payments is impacted by these changes.
Answers may vary as to changes being good or not, but may include discussion on whether resource
revenues should be included/excluded. Also, the growth rule has been criticized by
economists as interfering with the basic principle that equalization payments rise (fall) when
fiscal disparities across provinces increase (decrease).
6
Answer Key
Testname: UNTITLED24
1) D
2) B
3) D
4) D
5) D
6) C
7) B
8) A
9) A
10) D
11) A
12) B
13) B
14) D
15) D
16) D
17) B
18) A
19) A
20) B
21) B
22) A
23) B
24) B
25) B
26) A
27) B
28) A
29) Illustrated by Figure 8.3 from textbook:
30) Forquantities of G between 0 and 100, the equation of the line is G = 375 - c/2. Using this equation at G =
100 units, c would be 550. In the original equation, G = 100 units give c to be 250, which is a difference of
300. Therefore, from the kink at D, the equation is G = 210 - c/5 from 100 to 210.
7
Answer Key
Testname: UNTITLED24
31) Equity issues involve intercommunity migration and the potential failure of redistributive programs.
Efficiency concerns are related to externalities, scale economies in the provision of public goods and tax
collection, and inefficient tax systems. Communities impose externalities (both positive and negative) on
each other. If each community only cares about its own citizens, then these externalities are not taken into
account.
32) Some of the assumptions of the model are rather strong. Assuming that each individual has perfect
information about all communities, taxes, and services is rather strong. In addition, assuming that there are
enough communities for each individual's preferences for a package of public goods is tough.
33) People are not perfectly mobile; there are probably not enough communities so that each family can find one with a
bundle of services that suits it perfectly. There is also asymmetric information, etc.
There is a lot of mobility in the Canadian economy, there are lots of choices of communities to locate in, and the
Tiebout hypothesis performs well when empirically tested.
34) Payments are based on a formula. Changes included a fiscal capacity cap, only 50 percent of natural resource
revenues being included, and a ceiling on annual growth in total payments. The formula for calculating payments is
impacted by these changes.
Answers may vary as to changes being good or not, but may include discussion on whether resource revenues
should be included/excluded. Also, the growth rule has been criticized by economists as interfering with
the basic principle that equalization payments rise (fall) when fiscal disparities across provinces increase
(decrease).
8
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the only real Canaan of the American bondman, simply as a country
to which the wild goose and the swan repaired at the end of winter to
escape the heat of summer, but not as the home of man. I knew
something of Theology, but nothing of Geography. I really did not
know that there was a state of New York or a state of
Massachusetts. I had heard of Pennsylvania, Delaware, and New
Jersey, and all the southern states, but was utterly ignorant of the
free states. New York City was our northern limit, and to go there and
to be forever harassed with the liability of being hunted down and
returned to slavery, with the certainty of being treated ten times
worse than ever before, was a prospect which might well cause
some hesitation. The case sometimes, to our excited visions, stood
thus: At every gate through which we had to pass we saw a
watchman; at every ferry a guard; on every bridge a sentinel, and in
every wood a patrol or slave-hunter. We were hemmed in on every
side. The good to be sought and the evil to be shunned were flung in
the balance and weighed against each other. On the one hand stood
slavery, a stern reality glaring frightfully upon us, with the blood of
millions in its polluted skirts, terrible to behold, greedily devouring our
hard earnings and feeding it upon our flesh. This was the evil from
which to escape. On the other hand, far away, back in the hazy
distance, where all forms seemed but shadows under the flickering
light of the north star, behind some craggy hill or snow-capped
mountain, stood a doubtful freedom, half frozen, beckoning us to her
icy domain. This was the good to be sought. The inequality was as
great as that between certainty and uncertainty. This in itself was
enough to stagger us; but when we came to survey the untrodden
road and conjecture the many possible difficulties we were appalled,
and at times, as I have said, were upon the point of giving over the
struggle altogether. The reader can have little idea of the phantoms
which would flit, in such circumstances, before the uneducated mind
of the slave. Upon either side we saw grim death, assuming a variety
of horrid shapes. Now it was starvation, causing us, in a strange and
friendless land, to eat our own flesh. Now we were contending with
the waves and were drowned. Now we were hunted by dogs and
overtaken, and torn to pieces by their merciless fangs. We were
stung by scorpions, chased by wild beasts, bitten by snakes, and
worst of all, after having succeeded in swimming rivers, encountering
wild beasts, sleeping in the woods, suffering hunger, cold, heat, and
nakedness, overtaken by hired kidnappers, who in the name of law
and for the thrice-cursed reward would, perchance, fire upon us, kill
some, wound others, and capture all. This dark picture, drawn by
ignorance and fear, at times greatly shook our determination, and not
unfrequently caused us to