Mods 2.1-2.2: Circular Flow & GDP

Which of the following is FALSE about the circular-flow diagram?

• Households are the primary suppliers of goods and services.

• Firms are the primary suppliers of goods and services.

• Money flows in the opposite direction of goods and services.

• Money flows from households to product markets.

• Households supply labor, land, capital, and entreprenuership.

The total income households have after paying taxes and receiving government transfers is called:

• private savings

• net income

• gross income

• disposable income

• investment

An example of a government transfer is a(n):

• expenditure on an interstate highway

• unemployment payment

• salary for members of the armed forces

• income tax payment

• Post Office building

Investment spending represents spending on:

• stocks.

• labor.

• raw materials.

• land.

• physical capital.

Gross domestic product or GDP is:

• total accumulated wealth of an economy.

• volume of all dollar transactions made in an economy in one year.

• total market value of all final goods and services produced in one year.

• total quantity of money in circulation in the economy in one year.

• imports – exports.

Which of the following is included in GDP?

• foreign-produced goods

• used goods

• financial assets (stocks and bonds)

• changes to inventories

• personal savings

Which of the following components makes up the largest percentage of GDP measured by aggregate spending?

• consumer spending

• investment spending

• exports

• imports

• government purchases of goods and services

An intermediate good would be:

• government purchases of military equipment.

• a teacher's salary.

• lumber used in building a house.

• the natural gas used to heat a home.

• a baked pie.

When computing GDP, goods that are produced in a particular year but NOT sold in that year:

• are classified as intermediate goods.

• are not counted in GDP because they were not sold.

• are finally included in depreciation when they are sold.

• are added to inventories and are included in investment.

• are considered tax write-offs.