Circular flow model, In the circular flow model, firms use

Circular flow model

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Reference no: EM132927002

1. In the circular flow model, the source of the factors of production used to create goods and services is
a. the product market.
b. the resource market.
c. firms.
d. households.

2. In the circular flow model, firms use the money they earn from selling their goods and services to pay for the
a. goods and services they buy on the product market.
b. resources they buy on the product market.
c. goods and services they buy from government.
d. resources they buy in the factor market.

3. In the circular flow model, for every flow of goods, services, and resources there is a counter-flow of
a. more goods, services, and resources.
b. people from firms to households.
c. people from households to firms.
d. money.

4. In producing a sweater, a man who shears sheep pays a farmer $4 for a sheep. The shearing shop sells the wool to a knitting mill for $7. The knitting mill buys he wool and makes it into a fine fabric and sells it to a sweater-making firm for $13. The sweater-making firm sells the sweater to a clothing store for $20, and the clothing store sells the sweater, gift wrapped, for $50. What is the contribution to GDP of the previous sales transactions
a. $4.
b. $44.
c. $50.
d. $94.

5. Which of the following would be counted in GDP?
a. the purchase of an historical house
b. the purchase of a haircut
c. the purchase of a government savings bond
d. the value generated when you wash your car in your driveway

6. If private investment increased by $50 billion while GDP remained the same, which of the following could have occurred, all else being the same?
a. Consumption spending decreased by $50 billion.
b. Exports increased by $50 billion.
c. Imports decreased by $50 billion.
d. Net exports increased by $50 billion.

7. The four categories of expenditures that make up GDP are consumption, investment,
a. exports, and government purchases.
b. imports, and government purchases.
c. net exports, and government purchases.
d. net exports, and government transfer payments.

8. Real GDP is nominal GDP
a. plus depreciation.
b. adjusted for changes in the price level.
c. minus depreciation.
d. minus taxes.

An economy produces only two goods, oranges and VCRs. The quantities and prices for the years 1998 and 1999 are shown in the table. The base year is 1998.
1998 1999
Price Quantity Price Quantity
Oranges $2 5,000 $3 4,000
VCRs $400 1,000 $300 2,000

9. Nominal GDP in 1998 is
a. $402.
b. $12,000.
c. $200,200
d. $410,000

10. Nominal GDP in 1999 is
a. $18,000.
b. $180,000
c. $612,000.
d. $1,250,000.

11. Real GDP in 1998 is
a. $6,000
b. $240,000
c. $410,000
d. $612,000
12. Real GDP in 1999 is
a. $6,000.
b. $410,000.
c. $612,000.
d. $808,000.

Reference no: EM132927002

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