1.

Which of the following is a leakage out of the circular flow of production, income and
spending?:
A) Investment
B) Imports
C) Aggregate expenditure
D) Transfer payments

2. Suppose that aggregate demand is $350 billion, consumption spending is $200 billion,
investment spending is $100 billion, government spending is $100 billion, and exports
are $50 billion. How much are imports?
A) $100 billion
B) $150 billion
C) $200 billion
D) None of the above.

3. One respect in which saving differs from investment is that:

A) saving includes putting money into a bank account while investment refers to
buying stocks and bonds.
B) households engage in saving while the financial sector engages in investment.
C) saving is not a form of spending while investment is.
D) saving tends to boost aggregate expenditure while investment tends to reduce it.

4. Suppose consumption is $250 billion, saving is $150 billion, taxes are $125 billion, and
transfers are $25 billion. What is the level of GDP?
A) $200 billion
B) $300 billion
C) $400 billion
D) $500 billion

5. Which of the following is incorrect?

A) Transfer payments reduce disposable income.
B) Government spending plus transfer payments can exceed the government's tax
collections.
C) Government spending can exceed the government's tax collections.
D) All of the above are incorrect.

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 6. International trade reduces spending on domestic firms' output if
A) C+I+G>C+I+G+X-IM.
B) the country buys less from other countries than other countries buy from it.
C) C+I+G+X-IM>GDP
D) incomes in other countries are growing faster than domestic incomes are.

7. Government injects flows into the circular flow of production, income and spending
through:
A) government spending and transfers.
B) government spending and taxes.
C) taxes.
D) raising interest rates.

8. If households save more than they previously did out of a fixed disposable income, then:
A) they are consuming more of their disposable income.
B) imports will rise.
C) taxes may have risen.
D) none of the above.

9. Which of the following is correct?

A) Foxy Brown is a better rapper than Nicki Minaj.
B) The total value of output of goods and services within one year equals national
income that year on a cash flow basis.
C) If total spending by domestic entities (households, firms and government) exceeds
GDP, then there must be a trade surplus.
D) Government spending and transfer payments both directly feed into disposable
income.

10. Which of the following is the correct sequencing of a certain sub-set of flows in the
circular flow diagram:
A) exports lead to imports, which lead to aggregate expenditure.
B) investment spending leads to aggregate expenditure, which leads to production,
which leads to national income.
C) disposable income leads to saving, which leads to aggregate expenditure.
D) transfer payments lead to government spending, which leads to aggregate
expenditure, which leads to income.

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