Question 1

The figure given below represents the circular flow of income between households, firms, financial intermediaries, and foreign countries.
Figure 4.2
 
-Refer to Figure 4.2. Calculate the total amount of consumption expenditure.

Accepted Answer

A)   $7,500
B)   $25,000
C)   $10,000
D)   $42,500
E)   $35,000

Question 2

A household consists of only related family members like a father, mother, and children and not unrelated members like two students sharing a rented apartment.

Accepted Answer

A) True 
 B)False

Question 3

The figure given below represents the equilibrium price and output in the market for restaurant meals and delivery meals.
Figure 4.1
 
-Refer to Figure 4.1. In which direction will the resources flow following a shift in the demand for Restaurant Meals and Delivery Meals as represented by the figure?

Accepted Answer

A)   Resources flow from where they are more highly valued to where they are less highly valued in order to make the consumer better off.
B)   Resources flow from where they are more highly valued to where they are less highly valued in order to reduce prices.
C)   Resources flow from where they are more highly valued to where they are less valued in order to reduce costs.
D)   Resources flow from Restaurant production and sales to Delivery production and sales.
E)   Resources flow to Restaurant production and sales and away from Delivery production and sales.

Question 4

The owner of a sole proprietorship has limited liability, while stockholders of corporations have unlimited liability.

Accepted Answer

A) True 
 B)False

Question 5

Mark's ability to purchase goods and services depends on:

Accepted Answer

A)   his aesthetic sense.
B)   his ability to hunt out the best bargains.
C)   the amount of information that he has.
D)   his money income.
E)   his intelligence level.

Question 6

The resources owned by firms that shut down in the process of creative destruction:

Accepted Answer

A)   are used in activities that are identical to the failed business.
B)   are used where they have less value and thus reduce cost.
C)   move to activities where they are more highly valued.
D)   are liquidated and can never be used again.
E)   are written off and contribute to wastage in the economy.

Question 7

A surplus in a country's trade balance means that:

Accepted Answer

A)   net exports exceed transfer payments.
B)   the country's currency is over-valued.
C)   the value of net exports is positive.
D)   imports into the country exceed exports.
E)   domestic savings exceeds domestic investment.

Question 8

According to the circular flow of income, households interact with business firms by:

Accepted Answer

A)   buying resource services from business firms.
B)   paying wages for the use of labor.
C)   selling goods and services to firms.
D)   receiving payments from firms for use of resource services.
E)   paying rent to firms for the use of land.

Question 9

According to the World Bank, the high-income oil-exporting nations like Libya, Saudi Arabia, Kuwait, and the United Arab Emirates:

Accepted Answer

A)   are considered to be developing countries.
B)   are the major trade partners of the U.S.
C)   are also considered as industrial market economies.
D)   have highly interdependent economies.
E)   are considered highly developed countries.

Question 10

Annual expenditures by the federal government exhibited an upward trend, rising from $3 billion in 1930 to more than $1 trillion in 2010.

Accepted Answer

A) True 
 B)False

Question 11

When the government sector is included in the circular flow diagram, the total value of private production will equal the value of household income.

Accepted Answer

A) True 
 B)False

Question 12

Consider the circular flow of income model with households and firms as the two sectors. If business spending (investment)  were suddenly decreased due to expectations of a dismal economy in the near future, then because total purchases would suddenly be reduced:

Accepted Answer

A)   the income created would be reduced, and the value of output and the value of income would decline.
B)   the income created would be reduced, and the value of output and the value of income would no longer be equal.
C)   the income created would be reduced, and the value of output and the value of income would increase.
D)   the income created would be reduced, and the value of output and the value of income would decline until the foreign sector was introduced.
E)   the household sector would try to save more.

Question 13

Which of the following does not constitute a household consumption item?

Accepted Answer

A)   A pair of jeans
B)   A bottle of Beck's beer
C)   A haircut
D)   An electronic scanning machine
E)   A packet of breakfast cereals

Question 14

Spending on goods and services by all levels of government in the U.S. combined is smaller than investment spending but larger than consumption.

Accepted Answer

A) True 
 B)False

Question 15

The figure given below represents the circular flow of income between households, firms, financial intermediaries, and foreign countries.
Figure 4.2
 
-Refer to Figure 4.2. What is the total savings of the household sector?

Accepted Answer

A)   $35,000
B)   $25,000
C)   $17,500
D)   $42,500
E)   $45,000

Question 16

Which of the following is true of Western Europe, Japan, Canada, Mexico, and China taken together?

Accepted Answer

A)   All these countries are classified as high-income countries by the World Bank.
B)   They are all members of the North American Free Trade Agreement [NAFTA].
C)   All these countries are considered developed countries by the World Bank.
D)   They are collectively the largest trade partners of the U.S.
E)   They are the five largest exporters of agricultural produce in the world.

Question 17

Which of the following is true of households?

Accepted Answer

A)   It consists of the employed members of the family.
B)   It can comprise of either related members or unrelated individuals.
C)   It refers to only the owners of rented apartments.
D)   It comprises of a family of at least four members.
E)   It generally describes a family that has two earning members.

Question 18

In 2009, combined government spending in the U.S. economy was about:

Accepted Answer

A)   $50 billion.
B)   $500 billion.
C)   $12,163 billion.
D)   $5,000 billion.
E)   $2,012 billion.

Question 19

Which of the following flows from the government to the households, according to the circular flow diagram?

Accepted Answer

A)   Goods and services
B)   Resources of production
C)   Taxes
D)   Government services
E)   Loans

Question 20

Empirical evidence suggests that the federal budget has remained more or less in surplus between 1990 and 2002.

Accepted Answer

A) True 
 B)False

Exam 4: The Market System and the Private and Public Sector

Spending on goods and services by all levels of government in the U.S. combined is smaller than investment spending but larger than consumption.

Correct AnswerverifiedShow Answer

A household consists of only related family members like a father, mother, and children and not unrelated members like two students sharing a rented apartment.

Correct AnswerverifiedShow Answer

The figure given below represents the circular flow of income between households, firms, financial intermediaries, and foreign countries. Figure 4.2 -Refer to Figure 4.2. Calculate the total amount of consumption expenditure.

Correct AnswerverifiedShow Answer

In 2009, combined government spending in the U.S. economy was about:

Correct AnswerverifiedShow Answer

Consider the circular flow of income model with households and firms as the two sectors. If business spending (investment) were suddenly decreased due to expectations of a dismal economy in the near future, then because total purchases would suddenly be reduced:

Correct AnswerverifiedShow Answer

According to the circular flow of income, households interact with business firms by:

Correct AnswerverifiedShow Answer

Which of the following is true of Western Europe, Japan, Canada, Mexico, and China taken together?

Correct AnswerverifiedShow Answer

Which of the following flows from the government to the households, according to the circular flow diagram?

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The resources owned by firms that shut down in the process of creative destruction:

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Mark's ability to purchase goods and services depends on:

Correct AnswerverifiedShow Answer

Which of the following is true of households?

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The figure given below represents the circular flow of income between households, firms, financial intermediaries, and foreign countries. Figure 4.2 -Refer to Figure 4.2. What is the total savings of the household sector?

Correct AnswerverifiedShow Answer

Annual expenditures by the federal government exhibited an upward trend, rising from $3 billion in 1930 to more than $1 trillion in 2010.

Correct AnswerverifiedShow Answer

According to the World Bank, the high-income oil-exporting nations like Libya, Saudi Arabia, Kuwait, and the United Arab Emirates:

Correct AnswerverifiedShow Answer

The owner of a sole proprietorship has limited liability, while stockholders of corporations have unlimited liability.

Correct AnswerverifiedShow Answer

Which of the following does not constitute a household consumption item?

Correct AnswerverifiedShow Answer

The figure given below represents the equilibrium price and output in the market for restaurant meals and delivery meals. Figure 4.1 -Refer to Figure 4.1. In which direction will the resources flow following a shift in the demand for Restaurant Meals and Delivery Meals as represented by the figure?

Correct AnswerverifiedShow Answer

Empirical evidence suggests that the federal budget has remained more or less in surplus between 1990 and 2002.

Correct AnswerverifiedShow Answer

When the government sector is included in the circular flow diagram, the total value of private production will equal the value of household income.

Correct AnswerverifiedShow Answer

A surplus in a country's trade balance means that:

Correct AnswerverifiedShow Answer

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