Question

QUESTION 1

1. When modeling the economy net taxes is equal to the taxes paid by individuals less transfer payments. Which of the following represent an example(s) of transfer payments.

   		Government purchases
   		Income taxes
   		Property taxes
   		Social Security retirement payment

QUESTION 2

1. When modeling the flow of income and expenditures in an economy the two principal participants are households (consumers) and firms (producers).  The normal flow of resources would be that a firm would produce goods and services and the households would consume that good or service.  Where else can the income of a household flow?

   		Government purchases
   		Savings
   		Net taxes
   		Both Savings and Net Taxes

QUESTION 3

1. In the circular flow, household savings are shown as a flow into which sector of the economy?

   		Factor markets
   		Financial markets
   		Product markets
   		Foreign markets

QUESTION 4

1. In an open economy, if exports exceed imports, which of the following must also be true?

   		There must be a government budget deficit.
   		There must be a financial outflow.
   		There must be a financial inflow.
   		Both a and b, but not c

QUESTION 5

1. In the circular flow of an open economy, if saving is equal to investment and there is a financial inflow, then which of the following must also be true?

   		There must be a government budget deficit.
   		Imports must exceed exports.
   		Total leakages must exceed total injections.
   		Government expenditures must exceed transfer payments.

QUESTION 6

1. The tendency of a given change in exogenous planned expenditure causing a

   		greater change in equilibrium GDP is known as ________.
   		the multiplier effect
   		the Keynes effect
   		the unplanned investment effect
   		the twin deficit effect

QUESTION 7

1. If a certain economy has exports that exceed imports and a government budget surplus, then which of the following must be true?

   		Transfer payments must exceed gross wages.
   		Saving must exceed investment.
   		Investment must exceed saving.
   		There must be negative net inventory change.

  

QUESTION 8

1. Which of the following relationships is always true in a closed economy?

   		Consumption = investment
   		Investment + Government purchases = Savings + Net taxes
   		Consumption + Savings = Gross domestic Income
   		All of the above

QUESTION 9

1. Which of the following is always equal to gross domestic income in the circular flow of income and expenditure?

   		Gross leakages
   		Net tax revenues plus transfers
   		Net exports
   		Gross domestic product

QUESTION 10

1. What do we call the sum of income received by all households as wages, salaries, interest and other forms of income?

   		Gross household receipts
   		Gross domestic income
   		Household domestic receipts
   		Gross household injections

  

QUESTION 11

1. ________ is an example of an injection.

   		Exports
   		Imports
   		Saving
   		Net taxes

QUESTION 12

1. Which of the following has the strongest and most direct influence over the level of investment spending?

   		Net exports
   		Consumer confidence
   		The government budget deficit
   		Interest rates

  

QUESTION 13

1. Which of the following statements properly represents the relationships among the components of GDP?

   Let Q equal quantity of output; C is consumption; I is Investment; G is government spending; EX is Exports and IM is imports.

   		The quantity of output is equal to the sum of consumption, investment, government spending and exports.
   		The quantity of output is equal to the sum of consumption, investment, government spending and the net difference between exports and imports.
   		The quantity of output is equal to the sum of consumption, investment, government spending and imports.
   		The quantity of output is equal to the sum of consumption, investment, government spending and the net sum of exports and imports.

QUESTION 14

1. If consumers' earned income is unchanged, but part of their purchasing power is taken away by a tax increase, we would say there is ________.

   		an increase in disposable income
   		unplanned disposable investment
   		a decrease in disposable income
   		an increase in net leakages

  

QUESTION 15

1. Which of the following is considered to be an example of an exogenous element of the circular flow? An exogenous element is one that does not directly depend on the economic considerations.

   		Planned investment - planned based on supply and demand of goods and services
   		Government purchases - determined based on political and social considerations as well as other factors
   		Saving - determined based on supply and demand for money
   		Imports - determined based on the supply and demand for goods and services

QUESTION 16

1. The marginal propensity to consume or the percentage someone will spend if their income increases by $1, normally has a value _____.

   		less than one
   		between zero and one
   		equal to one
   		greater than one

  

QUESTION 17

1. Which of the following economists was known for a "psychological law" relating consumer expenditure to income?

   		Adam Smith
   		John Maynard Keynes
   		John Stuart Mill
   		David Ricardo

QUESTION 18

1. What will happen if firms produce goods that they expect to sell, but fail to sell because consumption is less than expected?

   		Positive unplanned inventory investment
   		Negative planned inventory investment
   		Negative total investment
   		Positive planned non-inventory investment

  

QUESTION 19

1. A change in which of the following can affect the level of consumption spending?

   		Total household income
   		Consumer wealth, for example, through an increase in the value of homes
   		A change in interest rates that makes consumer borrowing less expensive
   		All of the above

QUESTION 20

1. Suppose that, beginning from a state of equilibrium, there is an exogenous one billion increase in exports. Which of the following would be expected as a result?

   		A decrease in equilibrium GDP
   		No change in equilibrium GDP
   		An increase of less than 1 billion in equilibrium GDP
   		An increase of more than one billion in equilibrium GDP

Answer 1

Part 1) Transfer payments are a type of monetary transfer by the government for which no exchange of goods or services takes place. One of the examples of transfer payments is social security retirement payment.

Part 2) Households either consume their income or save it. So, the part of the income that the consumers are not consuming goes into savings.

Part 3) Household savings flow into financial markets in the circular flow, from where the firms borrow the funds for investment.

Part 4) If exports exceed imports then aggregate demand will rise. In other words, the aggregate demand curve will shift upward to the right. For a given price level, the demand will rise which will raise the level of output and income in the economy. For a given level of money supply an increase in the income will raise the demand for money for transaction purposes. As a result, the price of bonds will decline while the yield (interest rate) will rise.

An increase in the interest rate will result in financial inflow, as investors attracted by the higher interest rate will enter the domestic economy to take advantage of higher interest rate.