16) A money low in the circular low diagram is
i. the government’s collection of taxes.
ii. Chevrolet’s production of SUVs.
iii. Nike’s payment of wages to its workers.
A) i and iii
B) i, ii and iii
C) i only
D) ii only
E) ii and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
17) A real low in the circular low diagram is
i. a irm’s payments of wages to its workers.
ii. a household’s purchase of a new car.
iii. a farmer’s use of land to grow corn.
A) ii and iii
B) i only
C) i and iii
D) ii only
E) i, ii and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
18) An example of a real low in the circular low diagram is
A) a household’s supply of work efort at its new business.
B) the government’s payment of wages to a soldier.
C) Nike’s payment of wages to workers in China.
D) your county’s collection of property taxes.
E) a teacher’s salary at the local high school.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
41
19) An example of a money low in the circular low diagram is
A) a student’s payment of tuition to her university.
B) the government’s operation of the court system.
C) the government’s inancing of the national debt.
D) a irm’s production of goods to sell to a foreign country.
E) a farmer’s use of land to grow wheat.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
20) As the circular low model shows, the factors of production low from
A) irms to households through the factor market.
B) households to irms through the factor market.
C) irms to households through the goods market.
D) households to irms through the goods market.
E) the goods market through irms to the factor markets.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
21) In the circular low model, the factors of production low in the
A) same direction as do the rents, wages, interest, and proits.
B) opposite direction as do the rents, wages, interest, and proits.
C) opposite direction as does the government.
D) same direction as does the goods market.
E) opposite direction as does the goods market.
Skill: Level 4: Applying models
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
42
22) In the goods market, irms ________ and households ________.
A) purchase goods and services; supply goods and services
B) supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and
entrepreneurship services
C) pay rent, wages, interest, and proit; earn rent, wages, interest, and proit
D) supply goods and services; purchase goods and services
E) hire land, labor, capital, and entrepreneurship services; supply goods and services
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
23) In the factor market, irms ________ and households ________.
A) hire land, labor, capital, and entrepreneurship services; purchase goods and services
B) supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and
entrepreneurship services
C) pay rent, wages, interest, and proit; earn rent, wages, interest, and proit
D) purchase goods and services; supply goods and services
E) supply goods and services; purchase goods and services
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
24) Which of the following transactions takes place in factor markets?
A) Henry receives a commission from his employer for selling a new automobile.
B) Jake purchases 1,000 shares of stock in the Wal-Mart Corporation through his online
trading account.
C) Sam enters the winning bid on a grand piano at a local auction.
D) Justin receives $30 in exchange for mowing his neighbor’s lawn.
E) Lucille receives a $500 check from the U.S. Social Security Administration.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: New
AACSB: Application of knowledge
43
25) Which markets are depicted in the basic circular low model?
A) the goods market and the stock market
B) the factor market and the bond market
C) the goods market and the factor market
D) the money market and the foreign exchange market
E) the stock market and the bond market
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: New
AACSB: Relective thinking
26) In the circular low model, which of the following lows in the opposite direction from
the low of factors of production?
A) inished goods and services
B) wages, rent, interest, and proit
C) interests payments of Federal, state, and local governments
D) irm’s proit incentives
E) the goods market
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
27) Terri is enrolled in her irst economics course. She is required to give a presentation
about the circular low. Which of the following statements should she include in her
presentation?
A) Households choose the amount of the factors of production to provide the irms.
B) Firms choose the amount of the factors of production to provide households.
C) Households receive wages for the amount of entrepreneurship they provide irms.
D) Firms pay wages for the amount of entrepreneurship they provide households.
E) The lows of goods and services and payments for the goods and services low in the
same direction.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
44
28) Aaron locked himself out of his house and had to pay $40 to Brianna, who works for
Lucky Locksmith, to open his door. Based on this transaction in the economy and using
concepts from the circular low model, which of the following is true?
A) Brianna earned income from supplying her labor services.
B) Aaron earned income from supplying his labor services.
C) Brianna purchased goods and services.
D) Aaron acted as a irm in this transaction.
E) Aaron supplied goods and services.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
29) In the circular low model,
A) the government is represented as a separate market.
B) the government buys goods and services from irms.
C) goods and services are sold by households and purchased by irms.
D) factor markets are where goods rather than services are bought and sold.
E) the government has no direct interaction with either households or irms.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
30) In the circular low model with the government sector, transfers
A) low in the same direction as do taxes.
B) low in the opposite direction as do taxes.
C) to households low in the same direction as do expenditures on goods and services.
D) to irms low in the same direction as do rent, wages, interest, and proits.
E) low only through the goods market.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
45
31) In the circular low model with the government sector, taxes
A) low in the opposite direction as do transfers.
B) low in the same direction as do transfers.
C) on households low in the same direction as do the goods and services.
D) on irms low in the same direction as do factors of production.
E) low from the goods market to the factor markets.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
32) Which of the following is NOT shown explicitly in the circular low model?
A) the government’s purchases in the goods market
B) the taxes the government collects from households
C) the government’s interaction with irms
D) the legal system
E) the transfers the government makes to households
Skill: Level 3: Using models
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
33) Which of the following is a function of the U.S. federal government?
A) providing the legal and social framework for economic activity
B) distributing private goods and services
C) deciding for whom irms should produce goods and services
D) deciding how much to produce of private goods and services
E) determining what wages irms will pay their workers.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
46
34) Which of the following is NOT a function of the federal government?
A) collecting property taxes
B) making social security and welfare payments
C) making transfers to state and local governments
D) providing public goods and services
E) imposing a personal income tax
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
35) Of the following, the largest single component of U.S. federal government expenditures
is spent on
A) interest paid on the national debt.
B) Medicare and Medicaid.
C) national defense.
D) purchases of goods and services for purposes other than national defense.
E) transfers to state and local governments.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
36) The largest component of federal government spending is for
A) national defense.
B) Medicare and Medicaid.
C) education.
D) prisons.
E) interest on the national debt.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
47
37) Of the following, the federal government obtains most revenue from
A) excise taxes.
B) sales taxes.
C) corporate income taxes.
D) Social Security taxes.
E) property taxes.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
38) The two biggest items of the U.S. federal government revenue that together account for
over approximately 80 percent of total federal government revenue are
A) personal income taxes and Social Security taxes.
B) personal income taxes and corporate income taxes.
C) corporate income taxes and Social Security taxes.
D) corporate income taxes and property taxes.
E) personal income taxes and sales taxes.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
39) Of the following, the federal government’s largest source of revenue is the
A) sales tax.
B) property tax.
C) corporate income tax.
D) social security tax.
E) transfers from state and local governments.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
48
40) Tax revenues are transferred from
A) state governments to the federal government.
B) local governments to state and federal governments.
C) one state government to other state governments.
D) the federal government to state and local governments.
E) the state and local governments to the federal government.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
41) Of the following, the largest source of revenue for the federal government is the
A) personal income tax.
B) transfers from state and local governments.
C) corporation income tax.
D) lottery.
E) revenue from the sale of public lands.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
42) Income taxes paid by corporations are
A) the major source of revenue for the federal government.
B) the major source of revenue for state governments.
C) the major source of revenue for local governments.
D) about 9 percent of the federal government’s revenue.
E) the major source of expenditure by the federal government.
Skill: Level 2: Using deinitions
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
49
43) The national debt is the total amount the ________ government has borrowed to make
expenditures that ________ tax revenue.
A) state and local; are less than
B) federal; are less than
C) federal; exceed
D) state and local; exceed
E) federal; are equal to
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
44) The national debt is the total amount the ________ government has ________ to make
expenditures that exceed tax revenue.
A) state and local; borrowed
B) federal; taxed U.S. citizens
C) state and local; taxed U.S. citizens
D) federal; borrowed
E) federal; loaned
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
45) The total amount the federal government has borrowed to make expenditures that
exceed tax revenue is called
A) personal income taxes.
B) federal expenditures.
C) total government spending.
D) the net government revenue.
E) the national debt.
Skill: Level 1: Deinition
Section: Checkpoint 2.3
Status: Old
AACSB: Relective thinking
50