Public finance.

Public Finance Exam Questions  2016/17

1. Government economic functions are promotion of: Efficiency; Equity and Stability;

 Please explain shortly the government’s role in each of the three fields.

1. One of reasons of the necessity of the government involvement in economy is market inefficiency; please explain the sources  of market inefficiency.
2. There are at least two sources of market inability of efficient allocation of resources: imperfect competition and externalities;
3. What is a basic difference between perfect and imperfect competition from point of view of government role in the economy?
4. What is a basic difference between external economies and external diseconomies?
5. Please provide the example of the negative externality you are confronted every day in your life?
6. Please provide the example of the positive externality you are confronted every day in your life?
7. One of failures of market is its unwillingness to produce ”public goods”. Why?
8. Government /state and local/ must enter as a global spender ordering „public goods” and paying for them or manufacturing them and covering costs. Why government must do that?
9. Why Governments has to engage in promoting economic stability? What are reasons for that engagement?
10. Please give an example of the country that was inefficient in promoting economic stability in recent years.
11.  Please give an example of the country that was  quite efficient in promoting economic stability in recent years.
12. What macro policies governments use to smooth the business cycle?
13. What we mean by the term “market failure”?
14. The government addresses failures in the private market through the price mechanism. How?
15. Please explain tax burden similarities in the EU and the US.
16. What three parts of “the tax” we include to find tax burden?
17. Government spending as a % of the GDP in Sweden is above 50% and in Poland is about 32%. What are important consequences of that difference?
18. Budget nominal balance is a difference between:……
19. Primary balance is a difference between:………
20. Structural balance is a nominal balance adjusted to….?
21. How revenues of the public sector   balance are adjusted in good times to find structural balance?
22. How revenues of the public sector balance are adjusted in good times to find structural balance?
23. How expenditures of the public sector   balance are adjusted in good times to find structural balance?
24. How expenditures of the public sector balance are adjusted in good times to find structural balance?
25. In good times what tax policy is anty cyclical?
26. In bad times what tax policy is anty cyclical?
27. In bad times what tax policy is pro cyclical?
28. In good times what tax policy is pro cyclical?
29. In bad times what public expenditure policy is pro cyclical?
30. In good times what public expenditure policy is pro cyclical?
31. In bad  times what public expenditure  policy is anty cyclical?
32. In good times what public expenditure  policy is anty cyclical?
33. What is a permanent difference of tax revenues in the US and the EU countries?
34. Indifference curves have always negative slope . Why?
35. Example: we have two goods :a and b and utility function : U=. What is a value of the utility function when quantities of a=5 and quantities of b=20?[pic 1]
36. When  we say that: marginal utility is diminishing?
37. What is a marginal rate of substitution? Answer using one sentence.
38. Why MRS is diminishing?
39. Please make a graph of the budget constraint curve when budget constraint is 1000$ and there are two commodity  A= price 10$ and  commodity B price =5$?
40. Please make a graph of the budget constraint curve when budget constraint is 1000$ and there are two commodity  A= price 100$ and  commodity B price =20$?

1. Marginal Rate of substitution of commodities A and B is a  relation of A and B…?
2. Increase of the price creates substitution and income effect. We have a price of good A=10 and price of B =20 ; price of B increases to  30 what is a substitution and income effect in this example?
3. Increase of the price creates substitution and income effect. We have a price of good A=10 and price of B =20 ; price of B increases to  40 what is a substitution and income effect in this example?

1. Why supply curve has a positive slope in the short run?
2. Demand curve has a negative slope in the short run, why?
3. What happens to consumer surplus when price elasticity of demand is increasing?
4. What happens to consumer surplus when price elasticity of demand is decreasing?
5. The more inelastic supply the bigger surplus, is this true?
6. What is a social surplus?
7. Please explain  what is : a deadweight loss?
8. What we mean in the EU by the excessive deficit?
9. Please give the example of the EU  country with the balanced budget of the public sector and the example of the EU country with the chronical excessive deficit of the budget of the public sector.
10. What we mean by primary balance of the public sector?
11. What we mean by structural  balance of the public sector?
12. When nominal balance is better than structural balance of the public sector?
13. When nominal balance is worse  than structural balance of the public sector?
14. What does it mean that primary deficit is equal zero? What part of the public expenditures are not covered with the own revenues of the public sector? Part equal to:.. ?
15. What does it mean that primary deficit positive, greater than zero but less than debt service?
16. What does it mean that primary deficit is equal debt service?
17.  What is a difference between payment appropriation  and

commitment appropriation in the EU budget?

1. What is a difference between mandatory funds in every budget and discretionary funds?
2. The EU budget is balanced ex ante and ex post: how it is balanced ex post in the case of the deficit?
3. The EU budget is balanced ex ante and ex post: how it is balanced ex post in the case of the surplus?

1. When negative externality happens? Can you provide an example of negative externality you experience in you every days life?
2. There is a term “Pigouvian taxation”. What we mean by that?
3. When  a subsidy is a remedy for a positive production externality?
4. What are  pure public goods?
5. When we have an under consumption of public goods?
6. When we have an undersupply of public goods?
7. Please give an example of the free rider problem in your country.
8. When over consumption of the good publicly provisioned happens?
9. Methods of reglamentation of private goods from public sources; please provide at least three examples.
10. Quantity regulation of the pollution. Pros and contras.
11. When quantity regulation of the negative externalities   is a right choice?
12. When the tax / price/regulation of the negative externalities   is a right choice?
13. Compare quantity and price regulation of the negative externalities .
14. How we can find the optimal level of pollution reduction ?
15. What happens in the case of public provision of the private goods and services for free or with subsidies ?
16. Please explain the meaning of the “tax wedge”.
17. How the absorption of price increase due to taxation is  distributed among the supply and demand party of transaction in the case of:

1. Inelastic demand

1. How the absorption of price increase due to taxation is  distributed among the supply and demand party of transaction in the case of:

1. Inelastic supply

1. How the absorption of price increase due to taxation is  distributed among the supply and demand party of transaction in the case of:

                a)Higher elasticity of supply than demand

1. How the absorption of price increase due to taxation is  distributed among the supply and demand party of transaction in the case of:

                  a)Higher elasticity of demand than supply

90.What part of max-min rule of rational behavior  we should apply in the case of taxation and why?

91.Every tax is inefficient. Why?

92.What is the economic function of the social security charges?

93.What is the economic function of the dividend taxation?

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