Question 1

In a simple circular-flow diagram,firms use the money they get from a sale to

Accepted Answer

Firms use the money they get from a sale to pay wages to workers, rent to landlords, and profits to the firms' owners. Therefore, all of the above options are correct.

Question 2

Which of the following statements about GDP is correct?

Accepted Answer

GDP measures both the total income and expenditure in an economy, reflects the flow of money between households and firms, and is considered a key indicator of economic well-being.

Question 3

If an economy's GDP rises,then it must be the case that the economy's

Accepted Answer

GDP measures the total value of goods and services produced in an economy. Therefore, if GDP rises, it means that both income and expenditure have increased, as the production of goods and services has increased. It is not necessarily the case that saving falls, as this depends on the behavior of individuals and businesses within the economy.

Question 4

In a simple circular-flow diagram,firms

Accepted Answer

In a simple circular-flow diagram, firms purchase resources (such as labor, land, and capital) from households to produce goods and services.

Question 5

For an economy as a whole,

Accepted Answer

This is known as the basic identity of national income accounting, where the total income earned in an economy must be equal to the total expenditure made in the economy. Consumption and saving are components of expenditure, but they do not necessarily need to be equal to each other. Similarly, wages and profit are components of income, but they do not necessarily need to be equal to each other.

Question 6

For an economy as a whole,

Accepted Answer

This is known as the expenditure approach to measuring gross domestic product (GDP). GDP captures the total value of all goods and services produced in an economy and the total expenditure by households, businesses, and governments in purchasing those goods and services. Therefore, the market value of production must equal expenditure. Option B is incorrect because investment includes capital expenditures like buying new machinery and equipment, building new structures, and research and development expenses. It is not related to stocks and bonds. Option C is incorrect because not all income is in the form of wages, such as profits, capital gains, and interest income. Option D is incorrect because savings can be used for investment purposes and not just for consumption.

Question 7

For the economy as a whole,

Accepted Answer

In a closed economy (i.e. no international trade), expenditure equals income by definition. This is due to the fact that every dollar spent by a consumer is also earned by a producer. In other words, one person's expenditure becomes another's income. Therefore, for every dollar spent, there must also be a corresponding dollar earned. Thus, expenditure = income.

Question 8

In a simple circular-flow diagram,households buy goods and services with the income they get from

Accepted Answer

Households can receive income from multiple sources such as wages from working, rents from owning real estate, and profits from owning a business. Therefore, all of the choices are correct.

Question 9

In the GDP accounts production equals

Accepted Answer

In the GDP accounts, production is equivalent to income. This is because GDP measures the value of economic output in a country, and this output generates income for those who produce it (such as wages for workers and profits for businesses). Therefore, production is counted as income in the GDP accounts. B, C, and D are incorrect because they do not accurately represent the relationship between production and GDP.

Question 10

In a simple circular-flow diagram,

Accepted Answer

In a simple circular-flow diagram, households spend all their income on goods and services, all goods and services are bought by households, and expenditures flow through the markets for goods and services while income flows through the markets for the factors of production.

Question 11

If an economy's GDP falls,then it must be the case that the economy's

Accepted Answer

GDP measures the market value of all goods and services produced within a country's borders, so if GDP falls, it means that the market value of all production has fallen. Since income is a component of GDP, it will also fall when GDP falls.

Question 12

In a simple circular-flow diagram,total income and total expenditure are

Accepted Answer

In a simple circular-flow diagram, every transaction involves a buyer and a seller, so total income (the total amount earned by all households) is equal to total expenditure (the total amount spent on all goods and services). Therefore, option D is the correct answer. Option A is incorrect because total income can be equal to or less than total expenditure in certain situations. Option B is incorrect because the unemployment rate has no direct impact on the equality of total income and expenditure. Option C is incorrect because even with government purchases of goods and services, total income and expenditure can still be equal.

Question 13

In the actual economy,households

Accepted Answer

Households typically divide their income among spending on goods and services, taxes, and savings. This is known as the household budget constraint and reflects the fact that households must allocate their income in such a way that their total spending does not exceed their total income. While households do not necessarily buy all of the goods and services produced in the economy, they are a major source of demand for these goods and services, and their spending decisions can have a significant impact on economic activity. Households also do not necessarily spend all of their income, as they may choose to save some portion of it for future use.

Question 14

If an economy's GDP falls,then it must be the case that the economy's

Accepted Answer

GDP measures the total value of goods and services produced in an economy. Therefore, when GDP falls, it indicates a reduction in economic activity, which translates to lower income for firms and individuals. As a result, both income and expenditure will fall as people spend less due to lower income. Saving may or may not rise depending on the individual's preference and economic conditions.

Question 15

Expenditures on a nation's domestic production

Accepted Answer

The answer of Expenditures on a nation's domestic production
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Question 16

Gross domestic product measures

Accepted Answer

Gross domestic product (GDP) measures both income and expenditures. It is the total value of all goods and services produced within a country's borders in a given period of time. GDP is calculated by adding up all the income earned by individuals, businesses, and the government, as well as all the expenditures made on goods and services.

Question 17

Income generated by a nation's domestic production

Accepted Answer

Income generated by a nation's domestic production is equal to its domestic production because it represents the total value of goods and services produced within a country, which is measured by GDP.

Question 18

For an economy as a whole,income must equal expenditure because

Accepted Answer

Income and expenditure are interconnected in an economy as every dollar spent by a buyer becomes income for a seller. Hence, for the economy as a whole, total income must always equal total expenditure. This is known as the basic principle of national income accounting. Choice A is incorrect as the number of firms and households do not necessarily have to be equal. Choice B is incorrect as individuals can also borrow or borrow on credit to spend. Choice D is incorrect as saving and spending are two different components of income and expenditure.

Question 19

Which of the following statements about GDP is correct?

Accepted Answer

GDP is a measure of the total value of goods and services produced in an economy over a specific period, while household income refers to the income earned by a household over a particular period. While GDP can give an idea of an economy's overall performance, it does not necessarily reflect the well-being of individual households. Hence, choice C is the most accurate statement. Choices A and B are incorrect because GDP does not directly measure the unemployment rate, nor does it track the flow of money between households and government.

Question 20

Because every transaction has a buyer and a seller,

Accepted Answer

Since every transaction has a buyer and a seller, the amount spent by the buyer is also the amount received as income by the seller. Therefore, every transaction contributes equally to an economy's income and expenditure.

Quiz 10: Measuring a Nations Income: The Economy's Income and Expenditure

In a simple circular-flow diagram,firms use the money they get from a sale to

Which of the following statements about GDP is correct?

If an economy's GDP rises,then it must be the case that the economy's

In a simple circular-flow diagram,firms

For an economy as a whole,

For an economy as a whole,

For the economy as a whole,

In a simple circular-flow diagram,households buy goods and services with the income they get from

In the GDP accounts production equals

In a simple circular-flow diagram,

If an economy's GDP falls,then it must be the case that the economy's

In a simple circular-flow diagram,total income and total expenditure are

In the actual economy,households

If an economy's GDP falls,then it must be the case that the economy's

Expenditures on a nation's domestic production

Gross domestic product measures

Income generated by a nation's domestic production

For an economy as a whole,income must equal expenditure because

Which of the following statements about GDP is correct?

Because every transaction has a buyer and a seller,