Question

21   Which of the following is not one of the four components of the aggregate expenditures of an economy?

a.	Government spending
b.	Consumption
c.	Capitalistic spending
d.	Net exports
e.	Investment

22. The money that businesses pay for resources constitutes

a.	the supply of resources.
b.	income to households.
c.	part of the money market.
d.	the resource market.
e.	the market for goods and services.

23. Financial intermediaries are best described as

a.	institutions that accept deposits from savers.
b.	people who make loans to households.
c.	institutions that accept deposits and make loans.
d.	institutions that invest in various business ventures.
e.	people who are very skilled at making profits on the stock exchange.

24. The fact that income to one economic group constitutes expenditures for another economic group is characteristic of

a.	a planned economy.
b.	the scarcity of resources.
c.	barter transactions.
d.	the circular flow of income model.
e.	private production.

25 The circular flow model

a.	describes microeconomic activity within a capitalist system.
b.	explains the effect of government-imposed price controls.
c.	focuses on aggregate economic activity.
d.	illustrates the consequences of minimum-wage legislation.
e.	ignores the role of international trade.

26. In the circular flow model, businesses

a.	own resources.
b.	hire resources.
c.	provide public services.
d.	receive revenue from the government.
e.	sell capital goods in the financial market.

27. The circular flow model

a.	shows the flow of output and income within one sector of the economy.
b.	illustrates how different sectors of the economy are linked together.
c.	shows that income is rarely equal to output.
d.	illustrates how business firms interact with one another.
e.	shows how businesses sell their resource services to households.

28.          ____ in all circular flow diagrams.

a.	Foreign net output is included
b.	The trade deficit always equals payments for resource services
c.	The value of output is equal to income
d.	The value of private production always equals the value of household income
e.	Net exports must be positive

29. Which of the following is true of the circular flow model for the private sector?

a.	Total output is equal to government spending.
b.	Financial services are supplied only to consumers.
c.	Total output is equal to household income, business revenues, and net exports.
d.	The flow of imports and exports is controlled by the government.
e.	Business firms supply factors of production and demand government services.

30. The circular flow model for the private sector shows that

a.	business firms are the revenue source for consumers.
b.	financial intermediaries use the deposits from households to make loans to businesses.
c.	factors of production are demanded only by the government.
d.	net exports are always equal to zero.
e.	the goods and services produced by business firms are sold through resource markets.

Answer 1

21. The components of aggregate spending are Consumption(C), investment, (I), Government spending (G) and Net export (Nx).

Answer: c. Capitalistic spending.

22. The resources for the firms are supplied by the households. For these resources the business pays income to the households.

Answer: b. income to households.

23. The financial intermediaries accept deposit and make loans.

Answer: c. institutions that accept deposit and make loans.

24. The circular flow of income model explains that the income of one group is the expenditure of another group. For example the household supply factor services to the business. In return the business pay income to the household. The household use this income to buy the goods and services. Thus the business gets income through the expenditure of households.

Answer: d. circular flow of income model.

25. The circular flow of four sector model consists of household sector, business sector, government sector and foreign sector. This flow explains the different types of economic activities under taken by these sectors and the corresponding flow of income among these sectors.

Answer: c. focus on aggregate economic activity.

26. In a circular flow model the business hires resources from household to produce goods and services.

Answer: b. hire resources.

27. The circular flow explains how the different sectors of the economy are interrelated in their economic activities.

Answer: b. illustrates how different sectors of the economy are linked together.

28. The circular flow measures the total value of production.

Answer: c. the value of output is equal to income.

29. In a circular flow excluding government sector the value of total output is equal to household income, income of business and income from net export.

Answer: c. Total output is equal to household income, business revenue and net export.

30. In a private sector circular flow the households are the consumers and they gate revenue from business firms.

Answer: a. business firms are the revenue source to consumers.