Choose the best answer.
1. Evaluation of government financial performance is important for which of the following reasons?
a. Credit analysts use it to determine whether bonds should be issued.
b. Investors use it to make decisions about bond investments.
c. Oversight bodies use it to develop new laws.
d. Managers use it to evaluate day-to-day operations.
2. Which of the following terms or concepts focuses primarily on a government’s ability to generate enough cash over a 30- or 60-day period to pay its bills?
a. Inter period equity.
b. Financial position.
c. Budgetary solvency.
d. Cash solvency.
3. Why does the GASB prefer to use the term economic condition rather than financial condition?
a. Economic condition considers the probability that the government will meet both financial and service obligations currently and in the future, but financial condition does not.
b. Financial condition does not consider the ability to maintain service levels.
c. Economic condition focuses on both the ability and willingness to meet financial and service obligations.
d. Financial condition focuses primarily on liquidity.
4. Factors that influence a government’s financial condition include which of the following?
a. Financial factors, such as governmental fund financial ratios.
b. Environmental factors, such as community needs and resources.
c. Organizational factors, such as management practices and legislative policies.
d. All of the above.
5. Which of the following environmental factors reveals the entity’s underlying philosophies regarding willingness to support higher taxes, issuances of long-term debt, and increased social services?
a. Political culture.
b. Community needs and resources.
c. External economic conditions.
d. Management practices and legislative policies.
6. Which of the following would be an effective means of bench marking?
a. Comparing a city’s key ratios to those of special purpose governments in the area.
b. Comparing current-period ratios to published medians of the same ratios for cities of similar size or in the same geographic region.
c. Comparing key ratios to published medians of the same ratios for larger cities in other parts of the country.
d. Comparing current-period ratios to estimates for future periods.
7. Which of the following conditions could signal decreasing fiscal stress?
a. Increasing unemployment.
b. Decreasing property values.
c. Increasing revenues relative to expenditures.
d. Increasing levels of unfunded pension obligations and other post employment retirement benefits.

8. Rating agencies, such as FitchRatings, Moody’s Investor Service, KBRA, and Standard & Poor’s, produce bond ratings that
a. Are created using the exact same measures and weights.
b. Allow users to know how much better one issuing entity’s financial condition is than another’s.
c. Focus both on quantitative and qualitative factors using proprietary models.
d. Are intended to be precise indicators of the government’s long-term financial condition.
9. Which of the following suggests a government that is relying primarily on revenues it directly controls?
a. Property taxes, 30 percent; sales taxes, 20 percent; charges for services, 40 percent; grants and contributions, 5 percent; investment income, 5 percent.
b. Property taxes, 20 percent; charges for services, 60 percent; grants and contributions, 10 percent; investment income, 10 percent.
c. Property taxes, 40 percent; charges for services, 30 percent; grants and contributions, 20 percent; investment income, 10 percent.
d. Property taxes, 60 percent; charges for services, 5 percent; grants and contributions, 30 percent; investment income, 5 percent.
10. When interpreting the debt service percent (ratio), which of the following statements is a correct interpretation?
a. A value of 25 percent is considered a warning sign related to fiscal stress.
b. A value of 15 percent is considered a warning sign related to fiscal stress.
c. A value of 10 percent is considered a warning sign related to fiscal stress.
d. A debt service ratio is not as valuable in analyzing fiscal stress as the amount of principal and interest being paid on the debt.
11. Which of the following statements concerning the revenues/expenditures ratio is correct?
a. A ratio of 1.0 is an indicator of strong performance.
b. A ratio of 1.0 is an indicator of weak performance.
c. A ratio of 1.0 is an indicator of average performance.
d. A ratio of 1.0 is an indicator of moderately strong performance.
12. Which of the following would be considered a sign of fiscal stress?
a. Property values that have remained unchanged over the last three years.
b. An increase in defined pension benefits offered to employees.
c. An increase in capital expenditures for necessary infrastructure repairs.
d. Expenditures growing at a higher rate than revenues for the past three years.
13. Which of the following could be viewed as a signal of increasing fiscal stress?
a. Increasing education level.
b. Increasing number of households at the poverty level.
c. Increasing population age.
d. Increasing demand for building permits.

14. Which of the following factors is not considered by the rating agencies when conducting a ratings assessment?
a. The entity’s political culture.
b. The entity’s debt and other obligations.
c. The economy.
d. The entity’s management.
15. What is Electronic Municipal Market Access, or EMMA?
a. A library-based service that provides information about state and local governments that have issued debt.
b. A fee-based service that provides information to investors and credit analysts about government bond issues.
c. An online service that allows users to learn more about the municipal securities market.
d. A source of municipal finance information developed by the Securities and Exchange Commission.