Module 8

Question 1

What does government expenditure comprise?

Answer 1

Outlays for everything that government undertakes, including spending programs and regulation

Question 2

What is the main economic rationale for government activity?

Answer 2

To provide goods and services that private firms and households cannot provide efficiently

Question 3

What are public goods?

Answer 3

Goods and services available to everyone, whose consumption by one person does not diminish consumption opportunities for others

Question 4

Name a typical example of a public good.

Answer 4

• General security
• Efficient legal system
• Effective governance

Question 5

What role does government play in stabilizing the economy?

Answer 5

Only government can effectively implement countercyclical monetary and fiscal policies

Question 6

How does government establish a framework for private markets?

Answer 6

By establishing ‘rules of the game’ to encourage optimal levels of commerce and effective means for dispute resolution

Question 7

What is the problem of information asymmetry?

Answer 7

Market imperfections arising from asymmetric information that government must address through regulation

Question 8

Why do markets lead to concerns about income distribution?

Answer 8

Markets inevitably lead to wide variances in income, necessitating a social safety net

Question 9

What is the typical measure of government expenditure?

Answer 9

As a share of gross domestic product (GDP) or gross national income (GNI)

Question 10

How does government expenditure vary among countries?

Answer 10

Higher income economies typically have higher government expenditure than lower income economies

Question 11

What is the relationship between government expenditure and revenue in high-income countries?

Answer 11

Higher income countries have been more successful in raising revenue, particularly for social welfare programs

Question 12

What are quasi-fiscal expenditures?

Answer 12

Expenditures by off-budget public agencies that function like regular budgetary outlays

Question 13

What are the three broad types of government expenditure under economic classification?

Answer 13

• Current Expenditure
• Capital Expenditure
• Net Lending

Question 14

What does current expenditure include?

Answer 14

• Wages and salaries
• Purchases of goods and services
• Interest payments
• Subsidies and transfers

Question 15

What is capital expenditure?

Answer 15

Outlays for long-term projects, such as infrastructure

Question 16

What is mandatory expenditure?

Answer 16

Outlays made automatically by law without the need for appropriation or legislative approval

Question 17

What are discretionary expenditures?

Answer 17

Expenditures that must be approved each year, allowing the government to set spending levels

Question 18

What are contingent expenditures?

Answer 18

Spending obligations that arise if specific events happen

Question 19

Fill in the blank: Governments must ensure that interest on public debt is paid to avoid _______.

Answer 19

default

Question 20

What is the importance of transparency in government expenditures?

Answer 20

It allows for better control and accountability of spending programs

Question 21

What issues do governments face regarding the purchase of goods and services?

Answer 21

• Budget cuts due to fiscal constraints
• Difficulty attracting skilled workers
• Bribery in public procurement

Question 22

What are some challenges in capital expenditure?

Answer 22

• Ensuring adequate infrastructure
• Selecting projects using cost–benefit analysis
• Avoiding politically motivated projects

Question 23

What is unproductive expenditure as defined by the IMF?

Answer 23

The difference between actual spending and the reduced amount that would yield the same social benefit

Question 24

What are the types of subsidies that governments can provide?

Answer 24

• Direct production and sale of goods
• Rebates to consumers
• Payments to firms under conditions
• Subsidies for loans

Question 25

What must a government do if it has implicitly guaranteed deposits in the banking system?

Answer 25

Reimburse depositors for any losses ## Footnote This includes situations where a deposit insurance fund is exhausted.

Question 26

What are the typical expenditures borne by governments during natural disasters?

Answer 26

Emergency relief and repairs ## Footnote Examples include expenditures during earthquakes, floods, and hurricanes.

Question 27

What is a public-private partnership (PPP)?

Answer 27

Involves the use of private firms to supply public infrastructure or services ## Footnote Benefits can be similar to privatization if successful.

Question 28

What tools do governments have to control expenditure?

Answer 28

General management tools, practical rules of thumb, short-term measures ## Footnote These resources help achieve fiscal objectives.

Question 29

What is one general management tool that governments can use to control spending?

Answer 29

Consolidating fiscal accounts ## Footnote This includes monitoring off-budget and regular budgetary operations.

Question 30

What is fiscal space?

Answer 30

The availability of budget resources to finance worthwhile activities without prejudicing the government’s financial position ## Footnote Assessing fiscal space involves reviewing the budget for room for new programs.

Question 31

What is a rule of thumb for controlling government expenditure?

Answer 31

Avoid converting discretionary spending into mandatory programs ## Footnote This helps maintain adaptability and allows for phasing out outdated programs.

Question 32

List some short-term measures that governments can take to improve expenditure control.

Answer 32

* Cut marginal services * Consolidate similar programs * Impose appropriate fees * Require co-financing for activities * Improve targeting of benefits * Postpone less essential capital projects

Question 33

What is one fundamental expenditure reform that governments can adopt?

Answer 33

Adopting a medium-term budgeting framework (MTBF) ## Footnote This strategy establishes medium-term objectives for fiscal policy.

Question 34

What is one strategy for privatizing government activities?

Answer 34

Subcontracting activities that can be performed at a lower cost by private companies ## Footnote This can help reduce the size of the government workforce.

Question 35

What measures can be taken to review pay and employment policy in government?

Answer 35

* Provide incentive pay * Rethink political staffing * Give civil servants more authority * Review balance of short-term and permanent employees

Question 36

What is one potential risk associated with public-private partnerships?

Answer 36

The risks of partnership projects need to be monitored ## Footnote Governments should be aware of these before undertaking PPPs.

Question 37

What should governments monitor in addition to on-budget activities?

Answer 37

Off-budget spending and quasi-fiscal activities ## Footnote This includes monitoring tax expenditures as alternatives to formal spending.

Question 38

What is the rationale behind government expenditure?

Answer 38

To support the private sector and provide goods and services that cannot be efficiently provided by it ## Footnote Governments need to be aware of specific issues when setting policy.

Question 39

True or False: Governments should only focus on mandatory expenditure programs.

Answer 39

False ## Footnote They should also monitor potentially unproductive expenditures and consider relocating spending.