CFIM Multiple Choice

In the circular flow model, the real flow from households to producers is:

• wages and salaries

• goods and services

• factors of production

• consumption expenditure

In a circular flow model, if income is at a level where planned investment is greater than planned savings, then:

• total income will fall

• total income will rise

• total income will be unchanged but savings will fall

• investment will fall

If exports exceed imports, which of the following is required for the level of income to decrease?

• investment to be greater than savings

• injections to equal leakages

• the government to increase taxation so that it is greater than government expenditure

• investment by firms to be greater than household savings

An economic model should be rejected if it:

• is based on unrealistic assumptions

• is a simplified version of the complex real world

• generates misleading conclusions about economic behaviour in the real world

• is based on an unrealistic hypothesis

Which of the following is an injection into the circular flow of income?

• a growing deficit in the balance of payments (i.e. trade deficit)

• an increase in taxes with government expenditure held constant

• an increase in household savings

• an increase in the level of investment

If firns produce $2000 million worth of goods and services, households consume $1600 million worth of goods and services, and firms want to invest $200 million in a year, then:

• savings are $400 million and stock will fall by $200 million

• savings are $400 million and stock will rise by $200 million

• savings are $200 million and inventories will fall by $200 million

• savings are $200 milion and stock will rise by $200 million

Which of the following is NOT an assumption of the two-sector circular flow of income model?

• There is no taxation or spending by governments

• There is no saving by either households or firms

• All items are made from high-quality materials

• Firms produce only finished items for sale.

The circular flow of income model demostrates:

• that the total level of income cannot change

• the way income flows between different sectors of the economy

• that all consumers are also producers

• the flow of both intermediate and final goods and services

In a simple circular fow where there are just firms, households and a financial sector, equilibrium occurs when:

• households are obtaining maximum satisfaction from their incomes

• planned saving equals planned consumption

• there is full employment of resources

• planned investment equals planned savings

During a peak in the economic cycle, an economy is likely to be experiencing all of the following EXCEPT...

• growing wages pressure

• lower unemployment

• lower inflation

• higher interest rates