Basic Economics 16th International Edition By Frank V. Mastrianna – Test Bank

Chapter 11—The Circular-Flow Model and National Income Accounts

MULTIPLE CHOICE

1. The operation of the total economy can best be demonstrated by a
a. merry-go-round.
b. circular flow.
c. Ferris wheel.
d. roller coaster.

ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
TOP: A-Head: Circular Flow of Income KEY: Bloom’s: Knowledge

2. The size of the circular flow
a. measures the level of household purchases from business.
b. measures the level of income and output.
c. increases if there are more planned leakages.
d. measures the level of prices.

ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
TOP: B-Head: The Circular Flow and the GDP KEY: Bloom’s: Knowledge

3. In the circular flow, business owners receive
a. interest.
b. profits.
c. rent.
d. wages.

ANS: B PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
TOP: B-Head: Circular Flow Demonstrated KEY: Bloom’s: Knowledge

4. Which of the following are injections into the circular flow of income?
a. saving, investment, exports, and taxes
b. investment, taxes, and imports
c. saving, taxes, and imports
d. investment, government spending, and exports

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
TOP: A-Head: Circular Flow of Income KEY: Bloom’s: Knowledge

5. It is true that a stable economy occurs when
a. total injections into the circular flow are large enough to make up for government tax leakages.
b. total leakages from the circular flow are great enough to offset the effects of government spending.
c. total planned leakages from the circular flow are exactly equal to total planned injections into the circular flow.
d. actual saving is equal to planned investment.

ANS: C PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
TOP: A-Head: Circular Flow of Income KEY: Bloom’s: Analysis

6. In the circular flow, nonprofit institutions are
a. counted as businesses.
b. excluded.
c. treated separately.
d. counted as households.

ANS: A PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
TOP: B-Head: Circular Flow Demonstrated KEY: Bloom’s: Knowledge

7. In the circular flow, investment refers to spending on
a. government bonds.
b. certificates of deposit.
c. capital goods.
d. consumer goods.

ANS: C PTS: 1 DIF: Easy NAT: BUSPROG: Analytic
TOP: B-Head: Circular Flow Demonstrated KEY: Bloom’s: Knowledge

8. Which of the following statements concerning the circular flow model is (are) correct?
a. an increase in planned savings always generates an increase in planned investment spending.
b. planned investment spending is an injection into the circular flow.
c. increased investment always results in decreased savings.
d. All of these are correct.

ANS: B PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
TOP: B-Head: The Circular Flow and the GDP KEY: Bloom’s: Comprehension

9. In the circular flow, savings specifically represents
a. households’ cash hoards.
b. households’ bank savings account.
c. households’ total accumulated dollars.
d. total income minus consumption spending.

ANS: D PTS: 1 DIF: Moderate NAT: BUSPROG: Analytic
TOP: B-Head: The Circular Flow and the GDP KEY: Bloom’s: Comprehension

10. An example of unplanned investment is
a. an unexpected fire requires that an entire factory be rebuilt.
b. a bridge collapses and requires unexpected repair cost.
c. machine tool companies are forced to install new equipment to be able to meet Japanese competition.
d. None of these.

ANS: D PTS: 1 DIF: Challenging NAT: BUSPROG: Analytic
TOP: B-Head: The Circular Flow and the GDP KEY: Bloom’s: Comprehension