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11) Which of the following statements is FALSE?

A) The value of total income is equal in value to total output because profit is a cost of production.

B) In the circular flow model, households sell factor services to businesses in return for factor payments.

C) Businesses sell goods and services to households who use their income to pay for them.

D) Total income is always greater than total output.

 

12) Which of the following is consistent with the circular flow of income?

I.Goods and services flow in one direction.

II.Payments and incomes flow in one direction.

III.Sellers receive less than what buyers spend.

A) I only

B) II only

C) III only

D) Both I and II

13) According to the circular flow, the value of total output produced and total income

A) should differ by the value of intermediate goods.

B) should increase by the unanticipated rate of inflation.

C) will always be increasing in a capitalist economy.

D) will be equal.

 

14) 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.

 

15) The circular flow of income shows

A) goods, services, and money payments flowing in the same direction.

B) goods and money payments flowing in one direction and services flowing in the opposite direction.

C) goods and services flowing in one direction and money payments in the other direction.

D) goods flowing in one direction and services and money payments flowing in the other direction.

16) In the simple circular flow model,

A) households spend the income they receive from labor services but save the income they receive from selling the other factors of production.

B) businesses buy labor services from households, but supply other factors of production themselves.

C) households spend their entire income on consumer products.

D) profits are a type of income that is not received by households.

 

17) In the circular flow model, profits are considered to be

A) a subtraction from the Gross Domestic Product (GDP).

B) a cost of doing business.

C) equal to zero, or else the circular flow would be out of balance.

D) a form of interest payment.

 

18) 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 antitrust laws.

 

19) Profits represent

A) the income earned from a bond.

B) the payments firms make to their employees.

C) a reward to entrepreneurs.

D) the difference between total tax revenue and total government spending.

20) How do economists view profits?

A) Profits are an asset the business holds.

B) Profits are one of the costs paid to a factor of production.

C) Profits are guaranteed as long as a firm operates ethically.

D) The firm's profit equals the sum of all payments to the 5 factors of production.

 

 

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