CGFO Budgeting & Fiscal Policy Management 2 — Questions and Answers
Question 1: Which budgeting approach requires each department to justify every expenditure from zero each fiscal year, regardless of prior budgets?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Performance budgeting
- Program budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting (ZBB) requires all expenses to be re-justified from scratch each cycle rather than using prior-year amounts as a baseline.
Question 2: A government entity's budget shows revenues of $10M and expenditures of $11.5M. This situation is best described as a:
- Budget surplus
- Balanced budget
- Structural deficit
- Budget deficit (Correct answer)
Correct answer: Budget deficit
When expenditures exceed revenues in a given period, the result is a budget deficit.
Question 3: Under GASB standards, which fund type is used to account for activities that are financed and operated similarly to private businesses?
- General Fund
- Special Revenue Fund
- Enterprise Fund (Correct answer)
- Internal Service Fund
Correct answer: Enterprise Fund
Enterprise funds account for government activities that charge fees to users and operate similarly to private-sector businesses.
Question 4: What is the primary purpose of a Comprehensive Annual Financial Report (CAFR) in government budgeting?
- To set next year's appropriations
- To provide a complete picture of financial condition to stakeholders (Correct answer)
- To authorize new bond issuances
- To calculate pension obligations
Correct answer: To provide a complete picture of financial condition to stakeholders
The CAFR (now often called the Annual Comprehensive Financial Report) provides a thorough and detailed financial overview for accountability and transparency to citizens and oversight bodies.
Question 5: A government's general obligation bond is backed primarily by:
- Revenue from a specific project
- The full faith and credit of the issuing government (Correct answer)
- Federal grant guarantees
- The value of specific capital assets
Correct answer: The full faith and credit of the issuing government
General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power, not a specific revenue stream.
Question 6: Which fiscal policy tool involves the government increasing spending or cutting taxes during an economic downturn to stimulate economic activity?
- Contractionary fiscal policy
- Neutral fiscal policy
- Expansionary fiscal policy (Correct answer)
- Monetary tightening
Correct answer: Expansionary fiscal policy
Expansionary fiscal policy uses increased government spending or tax cuts to boost aggregate demand during recessions.
Question 7: In government budgeting, 'encumbrances' represent:
- Funds already spent and expensed
- Commitments of appropriated funds for future expenditures (Correct answer)
- Revenues that have been collected but not yet recognized
- Transfers between governmental funds
Correct answer: Commitments of appropriated funds for future expenditures
Encumbrances are commitments related to unperformed contracts for goods or services, reserving budget authority before actual expenditure occurs.
CGFO Budgeting & Fiscal Policy Management 2
Which budgeting approach requires each department to justify every expenditure from zero each fiscal year, regardless of prior budgets?