25) In the circular flow model with the government sector, taxes
A) flow in the opposite direction as do transfers.
B) flow in the same direction as do transfers.
C) on households flow in the same direction as do the goods and services.
D) on firms flow in the same direction as do factors of production.
E) flow from the goods market to the factor markets.
26) Which of the following is NOT shown explicitly in the circular flow model?
A) the governments’ purchases in the goods market
B) the taxes the governments collect from households
C) the governments’ interaction with firms
D) the legal system
E) the transfers the governments make to households
27) 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 firms should produce goods and services
D) deciding how much to produce of private goods and services
E) determining what wages firms will pay their workers.
28) Within the U.S. economy, the role of the government
A) includes providing some goods and services.
B) is solely to collect taxes.
C) is quite small and barely effects the private sector.
D) is solely to regulate and punish those who break the law.
E) is, in part, to determine the wages and salaries that all workers are paid.
29) 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.
30) Of the following, the largest single component of U.S. federal government expenditures is
spent on
A) interest paid on the national debt.
B) Social Security benefits.
C) national defense.
D) purchases of goods and services for purposes other than national defense.
E) transfers to state and local governments.
31) 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.
32) 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.
33) 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.
34) 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.
35) 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.
36) 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.
37) 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 12 percent of the federal government’s revenue.
E) the major source of expenditure by the federal government.
38) 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
39) 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
40) 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.
41) If there is a national debt, we can conclude that the federal government has
A) borrowed in the past.
B) purchased more goods and services than were needed.
C) spent money foolishly.
D) loaned funds to U.S. taxpayers in the past.
E) loaned funds to other nations in the past.
42) The largest expenditure by state and local governments is for
A) public welfare.
B) highways.
C) education.
D) fire and ambulance services.
E) transfers to the federal government.
43) State and local governments finance expenditures mainly from
A) tax revenue.
B) funds provided by the federal government.
C) government bonds issued at the state level.
D) private bank loans.
E) lottery funds.
44) Of the following, the largest source of tax revenue collected by state and local governments
comes from
A) personal income taxes.
B) corporate income taxes.
C) property taxes.
D) sales taxes.
E) lottery revenues.
45) State and local governments obtain most of their revenue from
A) excise taxes and property taxes.
B) state income taxes on individuals and corporate income taxes.
C) sales taxes and transfers from the federal government.
D) state lotteries and corporate income taxes.
E) corporate income taxes and property taxes.
46) Which of the following are sources of revenue for state and local governments?
i) property taxes
ii) sales taxes
iii) transfers from the federal government
A) i and ii.
B) ii and iii.
C) i and iii.
D) i, ii and iii.
E) i only.
47) Property taxes are a major source of revenue for
A) state and local governments.
B) the federal governments.
C) the federal, state, and local governments.
D) firms wanting to relocate their operations.
E) consumers.
48) The largest category of state and local government expenditures is
A) public welfare.
B) highways.
C) education.
D) interest on the national debt.
E) social security.
49) State and local governments spend about ________ of their expenditures on education.
A) 15 percent
B) 20 percent
C) 35 percent
D) 60 percent
E) 75 percent
50) Households and firms in the U.S. economy interact with those in the rest of the world in the
________ market and in the ________ market.
A) goods; factor
B) goods; financial
C) government; goods
D) financial; factor
E) firm; government
51) An example of a U.S. export is
A) a TV made in China sold to a buyer in Azerbaijan.
B) matchbooks made in Mexico sold to a buyer in New Jersey.
C) pasta made in Italy sold to buyers in Spain.
D) diamonds mined in Africa sold to buyers in South America.
E) a washing machine made in Indiana sold to a buyer in France.
52) Within the circular flow model, economists define households as
A) families with at least 2 children.
B) families living in their own houses.
C) individuals or groups living together.
D) married or engaged couples.
E) individuals or groups within the same legally defined family.
53) A market is defined as
A) the physical place where goods (but not services) are sold.
B) the physical place where goods and services are sold.
C) any arrangement that brings buyers and sellers together.
D) a place where money is exchanged for goods.
E) another name for a store.
54) In the circular flow model,
A) only firms sell in markets.
B) only households buy from markets.
C) some firms only sell and some firms only buy.
D) the money used to buy goods and the goods themselves travel in the same direction.
E) both firms and households buy or sell in different markets.
55) ________ choose the quantities of goods and services to produce, while ________ choose
the quantities of goods and services to buy
A) Households; firms
B) Firms; households and the government
C) The government; firms
D) Firms; only households
E) Households; the government
56) ________ choose the quantities of factors of production to hire and ________ choose the
quantities of goods and services to produce.
A) Entrepreneurs; firms
B) Firms; firms
C) Markets; markets
D) Factor markets; goods markets
E) Firms; households
57) In the circular flow model, rent, wages, interest, and profit paid flow from ________ through
________ to ________.
A) households; goods markets; firms as payment for goods
B) firms; factor markets; households
C) firms; goods markets; households
D) households; factor markets; firms
E) firms; goods market; firms
58) A circular flow model shows the interrelationship between the ________ market and the
________ markets.
A) household; goods
B) household; factor
C) business; household
D) expenditure; income
E) goods; factor
59) In the circular flow model, the expenditures on goods and services flow in the
A) same direction as goods and services in all cases.
B) same direction as goods and services only if they both flow through the goods market.
C) same direction as goods and services only if they both flow through the factor market.
D) opposite direction as goods and services.
E) same direction as factor markets.
60) Households receive transfers from ________ and firms receive transfers from ________.
A) government; government
B) firms; households
C) government; government and households
D) firms and government; government
E) government; no one
61) Of the following, the largest source of revenue for the federal government is
A) personal income taxes.
B) sales taxes.
C) corporate income taxes.
D) property taxes.
E) lottery revenue.
62) ________ are the largest components of state and local government revenue.
A) Transfers from federal government and corporate income taxes
B) Transfers from federal government and sales taxes
C) Individual income taxes and corporate income taxes
D) Individual income taxes and sales taxes
E) Corporate income taxes and lottery income
63) U.S. exports of goods and services flow to households and firms in ________ and U.S.
financial inflows of capital flow to households and firms in ________.
A) the United States; the United States
B) the United States; the rest of the world
C) the rest of the world; the United States
D) the rest of the world; the rest of the world
E) the United States; the rest of the world and the United States
2.4 Integrative Questions
1) If a product becomes more popular and consumers want more produced, which of the
following best describes what happens to move more factors of production into that industry?
A) An agency of the Federal government directs the movement of factors.
B) The chief executive officers or presidents of corporations require that factors leave one
industry and move to the other industry.
C) Factor owners voluntarily move their factors because they want to satisfy the interests of
consumers.
D) Wages, rent, interest, and profit increase in that industry, thereby giving factors the incentive
to move to that industry.
E) Consumers increase their demand for the products and, as a result, the taxes the producers
must pay decrease enabling the producers to hire more factors of production.
2) What determines the income flows that households receive?
A) an agency of the Federal government
B) what they choose to produce, how much is sold, and the price received when sold
C) their ownership of factors of production, how much they sell in the factor markets, and the
prices received when sold
D) financial institutions such as banks
E) what they choose to consume
3) What determines the revenue flows received by businesses?
A) an agency of the Federal government
B) what they choose to produce, how much is sold, and the price received when sold
C) their ownership of factors of production, how much they sell in the factor markets, and the
prices received when sold
D) financial institutions such as banks
E) what they pay the factors of production they employ.
2.5 Chapter Figures
The figure above shows the circular flow model.
1) In the figure above, which of the following represents a real flow of a factor of production?
A) Labor
B) Wages
C) Goods bought
D) Services sold
E) Firms’ expenditures on factors of production
2) In the figure above, which of the following represents a money flow?
A) Goods purchased
B) Interest
C) Capital
D) Services sold
E) Goods supplied
3) In the figure above, which of the following represents a real flow?
A) Expenditures on real estate services
B) Profit
C) Capital
D) Wages
E) Both B and D
4) In the figure above, which of the following transactions take place in the factor markets?
i. Michael, a student, orders a computer from Dell online.
ii. Peter gets a job at a Wal-Mart store.
iii. Apple Computer opens a new store in Georgia
A) ii and iii
B) Only i
C) Only ii
D) Only iii
E) i and ii