Economics Quiz #1

What is the main purpose of the five-sector circular flow model?

• To show how businesses make profit

• To describe how consumers buy goods

• To explain how money moves through the economy

• To demonstrate how the government collects taxes

Which of the following is an example of a leakage in the circular flow of income?

• Government spending

• Exports

• Investment

• Savings

During an economic expansion, which of the following is most likely to happen?

• Unemployment rises

• Wages fall

• Consumer spending increases

• Production decreases

Which sector would money flow to when an Australian miner sells iron ore to China?

• Financial

• Overseas

• Government

• Household

What is inflation?

• A decrease in interest rates

• An increase in prices over time

• An increase in wages only

• A rise in consumer savings

Which of the following is most likely to occur during an economic contraction?

• Wages increase

• Consumer spending increases

• Businesses hire more workers

• Production decreases

Which organisation sets the cash rate in Australia?

• Australian Bureau of Statistics

• Federal Government

• Reserve Bank of Australia

• Australian Prudential Regulation Authority

What happens when the Reserve Bank raises the cash rate?

• Borrowing becomes cheaper and saving less attractive

• People are encouraged to spend more

• Interest rates rise, reducing spending and inflation

• Wages rise quickly across all sectors

Why would a rise in exports lead to economic growth?

• It increases leakages

• It decreases financial activity

• It brings money into the economy as an injection

• It reduces the government’s role in the economy

In the CPI basket, which of the following categories has the highest weight?

• Food and non-alcoholic beverages

• Education

• Housing

• Health