kCHAPTER 6
Cost-Benefit Analysis and Government Investments
TRUE/FALSE QUESTIONS
1. A cost-effective program mix is one that accomplishes a given mission at minimum cost.
2. Cost-benefit analysis is a technique for determining the net benefits of alternative government projects.
F 3. An increase in the profits of gasoline dealers on an improved road is a benefit of the road project.
F 4. If increases in agricultural land values are viewed as a benefit of an irrigation project, then the market value of projected increased crops should also be included as a benefit of the project.
5. The social rate of discount must equal the opportunity cost of funds used to finance a project.
F 6. If a project has a B/C ratio of 0.9, its approval will result in net benefits to citizens of the nation.
F 7. The benefits of widening a road consist only of the cost savings to existing users of the road.
8. If the benefits of a new bridge exceed the costs, then there will be a net social gain from building the bridge.
F 9. If the marginal social cost of a new road exceeds its marginal social benefit, then building the road will result in a net social gain.
F 10. The higher the social rate of discount, the more government projects for which benefits will exceed costs.
T 11. A lower discount rate favors more capital-intensive investments that yield net benefits further into the future.
12. The present value of a stream of net benefits for 20 years will be less than the sum of those benefits unless the social rate of discount is zero.
F 13. Building a new sports stadium results in food sales at the facility. These food sales should be con¬sidered a benefit of the new stadium.
14. Program budgeting seeks to group agencies with similar purposes for budgeting, independent of the government department to which they belong.
F 15. Cost-benefit analysis can be viewed as a way of