The observation that goods and services flow in one direction and money payments flow in another direction is the principle behind
A) the double coincidence of wants.
B) a barter economy.
C) a pure command economy.
D) the circular flow of income.
2) According to the circular flow, the dollar value of a nation's output is equal to
B) total income.
C) net income minus taxes.
3) Economists consider profit to be
A) a cost of producing goods and services.
B) the same as a salary.
C) a reward for incurring losses.
D) something that should be eliminated by anticompetition laws.
4) According to the circular flow, total output produced and total income
A) should differ by the value of intermediate goods.
B) should be increased by the unanticipated rate of inflation.
C) will always be increasing in a capitalist economy.
D) will be equal.
5) One of the principles behind the concept of the circular flow is that
A) in every economic exchange, the seller receives exactly the same amount that the buyer spends.
B) in every economic exchange, the seller receives less than the amount that the buyer spends.
C) the seller of goods receives exactly the same amount that the buyer spends, but the seller of resources receives less than the buyer spends.
D) in exchange involving products, the seller receives less than the amount the buyer spends, but in resource markets the seller receives more than the buyer spends.
6) In the simple circular flow model,
A) households spend the money they receive from labour services but save the money they receive from selling the other factors of production.
B) businesses buy labour services from households, but supply other factors of production themselves.
C) households spend their entire income immediately on consumer products.
D) profits are a type of income that is not received by households.
7) The annual cost of producing the entire output of final goods and services in an economy is
A) equal to the quantity of total output produced.
B) greater than the total income of households in the economy.
C) equal to total income.
D) equal to the total income of households in the economy only if profits are zero.
8) In the simple circular flow model the money received by a car maker when it sells a car goes to
A) the workers who helped build the car.
B) the owners of firms who sold materials to the car maker, and the rest stays with the firm.
C) only the owners of the car maker.
D) the owners of all of the resources used to make the car.
9) A firm produces a good and generates $5 million in receipts. Wages are $3 million, rent is $500,000, and interest payments are $1 million. Then
A) profits are $500,000, the cost of production is $4.5 million, and households receive income equal to $4.5 million.
B) profits are $500,000, the cost of production is $5 million, and households receive income equal to $4.5 million.
C) profits are $500,000, the cost of production is $5 million, and households receive income equal to $5 million.
D) profits are $500,000, the cost of production is $5 million, and households receive income equal to $3.5 million.
10) Households receive a total income of $5 million. Of this, $3.5 million are wages received for labour services, $1 million are rental payments, and $250,000 are interest payments received. What are the costs of production and profits equal to respectively?
A) $5 million; $500,000
B) $5 million; $250,000
C) $4.75 million; $250,000
D) $4.75 million; 0
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