In the circular flow model, money flows from the business sector to the household
sector through the:
a. product market.
b. capital market.
c. goods market.
d. services market.
e. resource market.
Matchthefollowingbusinessformswiththeircharacteristicsbelow.
a. Sole proprietorship
b. Partnership
c. Corporation
Usually owned and operated by the same person
Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities
of $230,000. If Sawaddee total liabilities increased by $31,000 and its owners’ equity
decreased by $53,000 during the year, what was the amount of its total assets at the end
of the year?
a. $472,000
b. $242,000
c. $198,000
d. $428,000
Exhibit 5-6
Use the table below to answer the following question(s). Nominal GDP GDP
Year (billions) deflator
2003 600 100.0
2008 1,000 133.3 Refer to Exhibit 5-6. Between 2003 and 2008, the general level of
prices increased by approximately:
a. 16.7 percent.
b. 33.3 percent.
c. 66.7 percent.
d. 133.3 percent.
“Last month unemployment fell to 4 percent, its lowest level in years. The economy is
growing rapidly, but consumer prices have risen at an annual rate of 10 percent during
the last six months.” Which of the following policies would be most appropriate under
these circumstances?
a. An increase in both government spending and taxes.
b. An increase in taxes.
c. A reduction in taxes.
d. An increase in government spending.
Which of the following categories accounted for the largest percentage of total federal
government expenditures in recent years?
a. Income security.
b. National defense.
c. Education and health.
d. Interest on the national debt.
Foreachstatementprovided,choosetheletteroftheappropriatetermfromthelistthateachstate
mentbestdescribes.Sometermsmaybeusedmorethanonce,whileothersarenotusedatall.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
A distribution of the net income of a business to its owners.
A tax whose impact varies inversely with the income of the person taxed, and poor
people have a higher percentage of their income taxed than rich people, is known as a:
a. regressive tax.
b. progressive tax.
c. proportional tax.
d. flat tax.
e. tax holiday.
A downward shift in the consumption function can be caused by:
a. expectations of higher inflation.
b. an increase in wealth.
c. a lower price level.
d. none of these.
The freedom of consumers to cast their dollar votes to buy, or not to buy, at prices
determined in competitive markets describes:
a. socialism.
b. communism.
c. consumer sovereignty.
d. the aspirations of Karl Marx.
How much of the U.S. federal budget is spent on foreign aid?
a. About 1 percent. c. About 25 percent.
b. About 5 percent. d. About 50 percent.
According to Keynes, what is the most important determinant of households’ spending
on goods and services?
a. The price level.
b. The interest rate.
c. Autonomous consumption.
d. Disposable income.
Which of the following explains the vicious circle of poverty?
a. By investing in education and infrastructure at the same time, the country can
overcome the problems of poverty.
b. Poverty arises out of the lack of investment, but they cannot invest because they are
poor.
c. A nation can shift its production possibilities curve inward by shifting more resources
into the production of capital goods.
d. A nation can shift its production possibilities curve outward by shifting more
resources into the production of consumer goods.
e. There are dual economies in the world: Some are meant to be rich and others are
meant to be poor.
According to the shortsightedness effect, politicians tend to favor projects with:
a. short-run benefits and short-run costs.
b. short-run benefits and long-run costs.
c. long-run benefits and short-run costs.
d. long-run benefits and long-run costs.
International specialization and trade according to the principle of comparative
advantage is mutually beneficial for all economies involved.
The presence of the automatic stabilizers means an increase in the budget deficit will be
automatically experienced during an economic expansion whereas a budget surplus will
be automatically experienced during a recession.
According to the adaptive expectations theory, people form their expectations of the
future on the basis of future expectations.
Demand-pull inflation is most pronounced during a recession (as opposed to the
recovery phase of the business cycle).
What are the marginal propensity to consume (MPC) and the marginal propensity to
save (MPS)? How is the MPC related to the consumption function?
A consumer price index of 110 for a given year indicates that prices in that year are 10
percent higher than prices in the base year.
If the marginal propensity to consume (MPC) is 0.90, the value of the spending
multiplier is 90.
The value of child-rearing and other household production are not included in GDP.
Business cycles are recurring periods of economic growth and decline in an economy’s
real GDP.
Graphically express a production possibilities curve. What do points on, inside and
outside the curve represent? What does a rightward shift of the curve represent? How is
economic growth expressed in terms of the production possibilities model?