61) When Ethan continues his education beyond high school he is increasing his
A) capital.
B) wage rate.
C) human capital.
D) quantity of labor.
E) rent.
62) ________ is the human resource that organizes labor, land, and capital.
A) Human capital
B) Human skill
C) A gift of nature
D) Entrepreneurship
E) Profit
63) Wages are paid to ________ and interest is paid to ________.
A) entrepreneurs; capital
B) labor; capital
C) labor; land
D) entrepreneurs; land
E) labor; entrepreneurs
64) The income earned by entrepreneurs is
A) interest.
B) wages.
C) profit or loss.
D) rent, wages, and interest.
E) a mixture of rent, wages, interest, and profit.
65) Dividing the nation’s income among the factors of production, the largest percentage is paid
to
A) labor.
B) land.
C) capital.
D) entrepreneurship.
E) labor and capital, with each receiving about 41 percent of the total income.
66) ________ earned the highest amount of income among the factors of production in the
United States.
A) Labor
B) Capital
C) Land
D) Entrepreneurship
E) Investment
67) In the United States, the richest 20 percent of households receive about ________ percent of
total income.
A) 4
B) 15
C) 23
D) 50
E) 33
68) In the United States, the poorest 20 percent of households receive about ________ percent of
total income.
A) 3
B) 15
C) 23
D) 49
E) 20
69) The personal distribution of income shows
A) that labor receives the largest percentage of total income.
B) how profit accounts for the largest fraction of total income.
C) that the richest 20 percent of households receive 23 percent of total income.
D) that interest accounts for most of the income of the richest 20 percent of households.
E) that the poorest 20 percent of households receive less than 4 percent of total income.
2.2 The Global Economy
1) Compared to the world, the rate of U.S. population growth is
A) slower than in the world as a whole.
B) about the same as in the world as a whole.
C) much faster than in the world as a whole.
D) incomparable because U.S. residents are born with a much greater chance of accumulating a
lot of human capital.
E) incomparable because we do not have accurate world population statistics.
2) The U.S. population is roughly ________ percent of the world population.
A) 1
B) 5
C) 10
D) 20
E) 33
3) Approximately ________ people live in the United States and ________ people live in the
world.
A) 400 million; 8 billion
B) 300 million; 7 billion
C) 200 million; 5 billion
D) 300 million; 6 billion
E) 200 million; 6 billion
4) The most people live in ________ economies and the fewest people live in ________
economies.
A) developing; emerging market
B) advanced; emerging market
C) advanced; developing
D) emerging market; developing
E) developing; advanced
5) When describing the IMF broad country classification, the most accurate statement is that
A) the category with the greatest number of countries is the advanced economies.
B) the emerging market economies are countries that were, until the early 1990s, part of the
Soviet Union or its satellites.
C) most of the nations in Western Europe are considered emerging market economies.
D) most of the world’s population lives in advanced economies.
E) about 50 percent of the world’s population live in the advanced economies and the other 50
percent live in the emerging market and developing economies.
6) Which of the following is NOT classified as an advanced economy?
A) South Korea
B) Australia
C) Russia
D) Hong Kong
E) the United Kingdom
7) Canada is classified by the International Monetary Fund as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) a natural-resource based economy.
8) Most countries in the world are classified as
A) advanced.
B) in transition.
C) developing.
D) industrialized.
E) emerging market.
9) Most of the world’s population lives in
A) advanced economies.
B) developing economies.
C) transition economies.
D) emerging market economies.
E) island nations.
10) Which of the following is true?
i. The advanced economies account for more than half of global production.
ii. Almost four out of every five people in the world live in the developing economies.
iii. In the advanced economies, agriculture accounts for a larger part of total production than in
the developing economies.
A) Only i and ii
B) Only ii and iii
C) Only i and iii
D) Only i
E) i, ii, and iii
11) Nigeria would be classified by the International Monetary Fund as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) a resource-based economy.
12) Emerging market economies are located primarily in
A) Western Europe.
B) Southeast Asia.
C) Eastern Europe.
D) South America.
E) Northern Africa.
13) The percentage of the world’s population that lives in the emerging market economies is
A) more than 50 percent.
B) almost 80 percent.
C) about 7 percent.
D) about 25 percent.
E) about 67 percent.
14) Poland is classified as
A) an advanced economy.
B) a developing economy.
C) a transition economy.
D) an emerging market economy.
E) private economy.
15) The majority of the value of production in the world economy is produced in
A) all of the developing economies taken together.
B) all of Africa and the Middle East taken together.
C) China and other Asian developing economies.
D) all of the advanced economies taken together.
E) all of the emerging market economies taken together.
16) Which of the following is an example of an effort to decrease human capital differences
between an advanced and a developing economy?
A) Habitat for Humanity builds houses for low income families in the United States.
B) Colorado State University developed efficient and inexpensive cook stoves which are
distributed to poor families in Africa and Asia.
C) Creating Hope International trains women in Afghanistan to become tailors.
D) The Grameen Bank provides small business loans to very poor women in Bangladesh.
E) Intel donates money to a fund that provides safe drinking water in Nepal.
17) The charitable organization Creating Hope International trains women in Afghanistan to
become tailors. This effort reduces
A) physical capital differences between advanced and developing economies.
B) entrepreneurship differences between advanced and developing economies.
C) agricultural differences between advanced and developing economies.
D) manufacturing differences between advanced and developing economies.
E) human capital differences between advanced and developing economies.
18) Which of the following is an example of an effort to decrease physical capital differences
between an advanced and a developing economy?
A) American troops build roads in Iraq.
B) Through World Vision, women and children in Africa receive education.
C) Peace Corps volunteers teach English around the world.
D) Creating Hope International trains women in Afghanistan to become tailors.
E) Habitat for Humanity builds houses for low income families in the United States.
19) Of the following, the country with the highest average income per day in the world is
A) Japan.
B) the United States.
C) France.
D) Germany.
E) China.
20) The world population is approximately ________ people.
A) 6.8 million
B) 2 trillion
C) 6.8 billion
D) 6.8 trillion
E) 680 million
21) The percentage of the world’s population that lives in the advanced economies is
A) more than 71 percent.
B) between 51 percent and 70 percent.
C) between 31 percent and 50 percent.
D) between 20 percent and 30 percent.
E) less than 20 percent.
22) Which of following groups of countries are all advanced economies?
A) Australia, Brazil, and the United States
B) Hong Kong, Japan, France, and the United Kingdom
C) Italy, the United States, China, and Russia
D) Singapore, Russia, France, and Chad
E) Mexico, Canada, Germany, and Egypt
23) The emerging market economies are
A) the largest grouping including the nations of China and India.
B) in transition from state-owned production to free markets.
C) most of the nations of Western Europe.
D) the nations that are currently agricultural in nature.
E) the nations with the highest standards of living.
24) As a percentage of total world production, production in the 29 advanced economies is about
________ percent of total world production and in the 118 developing economies is about
________ percent of total world production.
A) 56; 36
B) 23; 62
C) 59; 12
D) 30; 46
E) 19; 73
25) Compared to the developing economies, the advanced economies have ________ human
capital and ________ physical capital.
A) more; more
B) more; less
C) the same; the same
D) less; more
E) less; less
26) In the advanced economies, ________ of the factories use advanced capital equipment and in
the developing economies ________ of the factories use advanced capital equipment
A) virtually all; virtually all
B) some; some
C) virtually all; none
D) some; none of
E) virtually all; some
27) Among the United States, Canada, Russia, India, and the United Kingdom, the country with
the highest average income per person is
A) the United States.
B) Russia.
C) India.
D) Canada.
E) the United Kingdom.
2.3 The Circular Flows
1) ________ the owners of the factors of production, while ________ what amounts of those
factors to hire.
A) Households are; firms determine
B) Households are; the government determines
C) The government is; firms determine
D) Firms are; households determine
E) Firms are; the government determines
2) Dan missed class the day the professor covered the circular flow model. Dan asked his friend
Joan to explain markets to him. Joan correctly stated that a market
A) requires a physical location for buyers and sellers to get together.
B) is any arrangement that brings buyers and sellers together.
C) must include a written contract between buyers and sellers.
D) is only a place to purchase groceries.
E) must have many buyers and only one seller, who is willing to sell to all the buyers.
3) The decisions of firms and households are
A) coordinated by markets.
B) made independently of one another.
C) controlled by but not totally coordinated by the government.
D) unexplainable by the circular flow model.
E) coordinated by but not totally controlled by the government.
4) The circular flow model is used to show the
A) flow of renewable natural resources.
B) recycling process of production materials.
C) expansions and contractions of economic activity.
D) flow of expenditures and incomes in the economy.
E) flow of supply and the flow of demand.
5) The circular flow model shows the
A) distribution of income and consumption goods across income levels.
B) combinations of the factors of production needed to produce goods and services.
C) flow of expenditure and incomes that arise from the households’, firms’, and governments’
decisions.
D) flow of natural resources from firms to the private market to government and back to firms.
E) distribution of income to the different factors of production.
6) The circular flow model shows the flow of
A) expenditure and income throughout the economy.
B) only money throughout the economy.
C) only funds in stock and bond markets.
D) only tax payments and government expenditures.
E) goods market and factor markets as they move through the economy.
7) In the circular flow model, there are two types of markets: the ________ market and the
________ market.
A) producers; consumers
B) households; firms
C) service; goods
D) goods; factor
E) supply; demand
8) In the circular flow model, consumption goods are bought and sold in the
A) goods market.
B) financial market.
C) factor markets.
D) government market.
E) monetary flows.
9) In the circular flow model, which of the following is on the buying side in the goods market?
i. firms
ii. households
iii. federal, state, and local governments
A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) ii and iii.
10) In the circular flow model, which of the following is on the selling side in the goods market?
A) federal, state, and local governments
B) only households
C) exporters
D) only firms
E) both firms and households
11) The circular flow model shows that goods and services flow from
A) businesses to households.
B) households to business.
C) the factor market to businesses.
D) the goods market to businesses.
E) the factor markets to the goods markets.
12) As the circular flow model points out, a choice that households make is how
A) many resources a firm will hire.
B) many goods and services are produced.
C) many goods and services are purchased.
D) much labor is hired.
E) much the government will collect in taxes and how much the government will spend on
transfer payments.
13) In the circular flow model, which of the following owns the factors of production?
A) only federal, state, and local governments
B) only households
C) only firms
D) both firms and households
E) firms, households, and all levels of government
14) In the circular flow model, the factor markets are the markets in which
A) consumption goods and services are bought and sold.
B) government goods and services are provided.
C) land, labor, capital, and entrepreneurship are bought and sold.
D) investment goods and services are bought and sold.
E) governments impose all their taxes.
15) As the circular flow model shows, the factors of production flow from
A) firms to households through the factor market.
B) households to firms through the factor market.
C) firms to households through the goods market.
D) households to firms through the goods market.
E) the goods market through firms to the factor markets.
16) In the circular flow model, the factors of production flow in the
A) same direction as do the rents, wages, interest, and profits.
B) opposite direction as do the rents, wages, interest, and profits.
C) opposite direction as does the government.
D) same direction as does the goods market.
E) opposite direction as does the goods market.
17) In the goods market, firms ________ 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 profit:; earn rent, wages, interest, and profit
D) supply goods and services; purchase goods and services
E) hire land, labor, capital, and entrepreneurship services; supply goods and services
18) In the factor market, firms ________ 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 profit; earn rent, wages, interest, and profit
D) purchase goods and services; supply goods and services
E) supply goods and services; purchase goods and services
19) In the circular flow model, who hires the factors of production in the factor markets?
A) an agency of the Federal government
B) only households
C) the goods market
D) only firms
E) both firms and households
20) In the circular flow model, which of the following flows in the opposite direction from the
flow of factors of production?
A) finished goods and services
B) wages, rent, interest, and profit
C) interests payments of Federal, state, and local governments
D) firm’s profit incentives
E) the goods market
21) Terri is enrolled in her first economics course. She is required to give a presentation about
the circular flow. Which of the following statements should she include in her presentation?
A) Households choose the amount of the factors of production to provide the firms.
B) Firms choose the amount of the factors of production to provide households.
C) Households receive wages for the amount of entrepreneurship they provide firms.
D) Firms pay wages for the amount of entrepreneurship they provide households.
E) The flows of goods and services and payments for the goods and services flow in the same
direction.
22) 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 flow 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 firm in this transaction.
E) Aaron supplied goods and services.
23) In the circular flow model,
A) the government is represented as a separate market.
B) the government buys goods and services from firms.
C) goods and services are sold by households and purchased by firms.
D) factor markets are where goods rather than services are bought and sold.
E) the government has no direct interaction with either households or firms.
24) In the circular flow model with the government sector, transfers
A) flow in the same direction as do taxes.
B) flow in the opposite direction as do taxes.
C) to households flow in the same direction as do expenditures on goods and services.
D) to firms flow in the same direction as do rent, wages, interest, and profits.
E) flow only through the goods market.