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1. Gross domestic product measures
a.
income and expenditures.
b.
income but not expenditures.
c.
expenditures but not income.
d.
neither income nor expenditures.
2. Expenditures on a nation’s domestic production
a.
are less than its domestic production.
b.
are equal to its domestic production.
c.
are greater than its domestic production.
d.
could be less than, equal to, or greater than its domestic production.
3. Income generated by a nation’s domestic production
a.
is less than its domestic production.
b.
is equal to its domestic production.
c.
is greater than its domestic production.
d.
could be less than, equal to, or greater than its domestic production.
4. For an economy as a whole,
a.
wages must equal profit.
b.
consumption must equal income.
c.
income must equal expenditure.
d.
consumption must equal saving.
5. For an economy as a whole,
a.
the market value of production must equal expenditure.
b.
investment must equal the value of stocks and bonds purchased.
c.
wages must equal income.
d.
consumption must equal saving.
6. For the economy as a whole,
a.
income must be greater than expenditure.
b.
unemployment must rise when GDP rises.
c.
expenditure must equal income.
d.
consumption must be greater than investment.
7. Which of the following statements about GDP is correct?
a.
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on
the economy’s output of goods and services.
b.
Money continuously flows from households to firms and then back to households, and GDP measures this
flow of money.
c.
GDP is generally regarded as the best single measure of a society’s economic well-being.
d.
All of the above are correct.
8. In the GDP accounts production equals
a.
income.
b.
income + saving.
c.
income - government expenditures.
d.
income - imports.
9. Because every transaction has a buyer and a seller,
a.
GDP is more closely associated with an economy’s income than it is with an economy’s expenditure.
b.
every transaction contributes equally to an economy’s income and to its expenditure.
c.
the number of firms must be equal to the number of households in a simple circular-flow diagram.
d.
firms’ profits are necessarily zero in a simple circular-flow diagram.
10. For an economy as a whole, income must equal expenditure because
a.
the number of firms is equal to the number of households in an economy.
b.
individuals can only spend what they earn each period.
c.
every dollar of spending by some buyer is a dollar of income for some seller.
d.
every dollar of saving by some consumer is a dollar of spending by some other consumer.
11. If an economy’s GDP falls, then it must be the case that the economy’s
a.
income falls and saving rises.
b.
income and saving both fall.
c.
income falls and expenditure rises.
d.
income and expenditure both fall.
12. If an economy’s GDP falls, then it must be the case that the economy’s
a.
income and saving fall.
b.
income and market value of all production both fall.
c.
income falls and market value of all production rises.
d.
income rises and market value of all production falls.
13. If an economy’s GDP rises, then it must be the case that the economy’s
a.
income rises and saving falls.
b.
income and saving both rise.
c.
income rises and expenditure falls.
d.
income and expenditure both rise.
14. Which of the following statements about GDP is correct?
a.
GDP measures two things at once: the total income of everyone in the economy and the unemployment rate of
the economy’s labor force.
b.
Money continuously flows from households to government and then back to households, and GDP measures
this flow of money.
c.
GDP is to a nation’s economy as household income is to a household.
d.
All of the above are correct.
15. In a simple circular-flow diagram, total income and total expenditure are
a.
never equal because total income always exceeds total expenditure.
b.
seldom equal because of the ongoing changes in an economy’s unemployment rate.
c.
equal only when the government purchases no goods or services.
d.
always equal because every transaction has a buyer and a seller.
16. In a simple circular-flow diagram,
a.
households spend all of their income.
b.
all goods and services are bought by households.
c.
expenditures flow through the markets for goods and services, while income flows through the markets for the
factors of production.
d.
All of the above are correct.
17. In a simple circular-flow diagram, firms use the money they get from a sale to
a.
pay wages to workers.
b.
pay rent to landlords.
c.
pay profit to the firms’ owners.
d.
All of the above are correct.
18. In a simple circular-flow diagram, firms
a.
purchase resources from households.
b.
purchase the output produced by households.
c.
receive income by selling resources to households.
d.
All of the above are correct.
19. In a simple circular-flow diagram, households buy goods and services with the income they get from
a.
wages.
b.
rents.
c.
profits.
d.
All of the above are correct.
20. In the actual economy, households
a.
spend all of their income.
b.
divide their income among spending, taxes, and saving.
c.
buy all goods and services produced in the economy.
d.
Both (a) and (c) are correct.
21. Total income from the domestic production of final goods and services equals
a.
only household expenditures on these goods and services
b.
only household and business expenditures on these goods and services.
c.
only household and government expenditures on these goods and services.
d.
the expenditures on these goods and services by whoever buys them.
22. In the actual economy, goods and services are purchased by
a.
households, but not firms or the government.
b.
households and firms, but not the government.
c.
households and the government, but not firms.
d.
households, firms, and the government.
23. According to the circular-flow diagram GDP
a.
can be computed as the total income paid by firms or as expenditures on final goods and services.
b.
can be computed as the total income paid by firms, but not as expenditures on final goods and services.
c.
can be computed as expenditures on final goods and services, but not as the total income paid by firms.
d.
cannot be computed as either total income paid by firms or expenditures on final goods and services.
24. According to the circular-flow diagram GDP
a.
can be computed as either the revenue firms receive from the sales of goods and services or the payments they
make to factors of production.
b.
can be computed as the revenue firms receive from the sales of goods and services but not as the payments
they make to factors of production.
c.
can be computed as payments firms make to factors of production but not as revenues they receive from the
sales of goods and services.
d.
cannot be computed as either the revenue firms receive or the payments they make to factors of production.
25. According to the circular-flow diagram, GDP
a.
can be computed as payments firms make to factors of production plus revenues they receive from the sales of
goods and services.
b.
can be computed as the revenue firms receive from the sales of goods and services minus the payments they
make to factors of production.
c.
can be computed as either the revenue firms receive from the sales of goods and services or the payments
firms make to factors of production.
d.
can be computed as the payments firms make to factors of production, but not as revenues they receive from
the sales of goods and services.
Figure 23-1.
26. Refer to Figure 23-1. Which of the following pairs correctly identify W and Y?
a.
markets for factors of production and markets for goods and services
b.
firms and households
c.
expenditures and income
d.
consumption and investment
27. Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars?
a.
W, X, Y and Z
b.
K, M, L and N
c.
C, K, M and D
d.
A, L, N and B
28. Refer to Figure 23-1. Which of the following pairs correctly identify X and Z?
a.
markets for factors of production and markets for goods and services
b.
firms and households
c.
GDP deflator and CPI
d.
flow of dollars and flow of inputs and outputs
29. In the simple circular-flow diagram, with households and firms, GDP can be computed
a.
as the income received by households, in the form of wages, rent and profit.
b.
as the income received by households in the form of wages.
c.
as the payments made by firms for labor.
d.
as the profits received by households.
30. In the simple circular-flow diagram, with households and firms, GDP can be computed
a.
as the total payments for factors of production made by households.
b.
as the total expenditures by households on goods but not services, since services are intangible.
c.
as the total expenditures by households on goods and services.
d.
as the total expenditures by households on goods and services, less taxes paid.
31. For an actual economy, total expenditures on goods and services by households does not equal GDP because
a.
household spending exceeds their incomes.
b.
household expenditures on goods and services falls short of GDP, since household save for the future.
c.
household expenditures include only goods, since services are intangible and cannot be measured accurately.
d.
household expenditures on goods and services are made using borrowed funds.
