Principles of Macroeconomics

Homework Assignment 4

Multiple Multiple Choice

____ 1. 1 In a circular-flow diagram,

a.	taxes flow from households to firms, and transfer payments flow from firms to households.
b.	income payments flow from firms to households, and sales revenue flows from households to firms.
c.	resources flow from firms to households, and goods and services flow from households to firms.
d.	inputs and outputs flow in the same direction as the flow of dollars, from firms to households.

____ 2. 2 Which of the following items is not a factor of production?

a.	labor
b.	land
c.	capital
d.	money

____ 3. 3 In the circular-flow diagram, households

a.	are represented, but firms are not represented.
b.	own the factors of production.
c.	are buyers of inputs.
d.	directly receive revenue from the sale of goods and services.

____ 4. 4 In the circular-flow diagram,

a.	households own the factors of production.
b.	households buy all the goods and services that firms produce.
c.	land, labor, and capital flow from households to firms.
d.	All of the above are correct.

____ 5. 5 In the markets for the factors of production,

a.	households are sellers and firms are buyers.
b.	households are buyers and firms are sellers.
c.	households and firms are both buyers.
d.	households and firms are both sellers.

Figure 2-2

____ 6. 6 Refer to Figure 2-2. The figure represents a circular-flow diagram. If Box A represents firms, then which box represents households?

a.	Box B
b.	Box C
c.	Box D
d.	Any one of the other boxes (B, C, or D) could represent households.

____ 7. 7 Refer to Figure 2-2. The figure represents a circular-flow diagram. If households are sellers in the markets represented by Box D, then

a.	Box D must represent the markets for factors of production.
b.	Box C must represent the markets for goods and services.
c.	firms are buyers in the markets represented by Box D.
d.	All of the above are correct.

____ 8. 8 Refer to Figure 2-2. The figure represents a circular-flow diagram. If households are buyers in the markets represented by Box C, then

a.	Box C must represent the markets for the factors of production.
b.	Box D must represent the markets for products.
c.	firms are sellers in the markets represented by Box C.
d.	All of the above are correct.

____ 9. 9 Refer to Figure 2-2. The figure represents a circular-flow diagram. If the outer loop represents flows of dollars, then the inner loop includes

a.	flows of dollars, of which households pay to firms.
b.	flows of factors, goods and services.
c.	flows of rent payments paid to owners of land.
d.	flows of wages and salaries paid to workers.

____ 10. 10 Refer to Figure 2-2. The figure represents a circular-flow diagram. Marsha works as an attorney for a corporation and is paid a salary in exchange for the legal services she performs. James owns office buildings and rents his buildings to companies in exchange for rent payments. If Marsha’s income is represented by a flow of dollars from Box D to Box B, then James’s income is represented by a flow of dollars

a.	from Box A to Box C.
b.	from Box C to Box A.
c.	from Box C to Box B.
d.	from Box D to Box B.

____ 11. 11 A Lorenz Curve measures

a.	the percentage of income growth.
b.	the degree of income inequality.
c	the percentage of population growth.
d.	the relationship between demand and supply.

____ 12. 12 If a Lorenz Curve were the same as the 45-degree line, it would indicate that

a.	45% of the people won 55% of the income while the rest 55% of the people own 45% of the income.
b.	One person owns all of the income while the rest of the people have no income in that country.
c.	1% of the people of the people own 45% of the income; the rest of 99% own 55% of the income.
d.	Everyone in that society receive exactly the same amount of income.

____ 13. 13 Which one of the following is a disadvantage of partnerships?

a.	Limited life which foster instability.
b.	Unlimited liability.
c.	Limited access to capital
d.	All of the above.

____ 14. 14 Which of the following has limited liability?

a.	Both sole proprietorship and partnership have limited liability.
b.	Sole proprietorship has limited liability.
c.	The owners of partnership and corporations have limited liability.
d.	Corporations’ owners have limited liability.

____ 15. 15 Which one of the following statements best characterizes double taxation?

a.	The sole proprietor has to pay sales taxes and income taxes.
b.	The profit of corporation is taxed by both state and federal government.
c.	The government taxes the corporations’ profit first; it then taxes the dividends as they become personal income.
d.	Double taxation does not apply in the United States because of its fair system of taxation.

____ 16. 16 A good example of regressive tax is

a.	Income taxes.	c.	Property taxes.
b.	Sales taxes.	d.	Corporation profit taxes.

____ 17. 17 A good example of a tax based on the ability-to-pay principle is

a.	the Federal Income Tax.	c.	the corporate income tax.
b.	the sales tax.	d.	the gasoline tax.

____ 18. 18 A consumer in China purchases a television produced by General Electric Company in the USA.

a.	the television is considered as exports by China and imports by the U.S.
b.	the television is considered as imports by China and exports by the U.S.
c.	the television is considered as exports by China and by the U.S.
d.	the television is considered as imports by China and by the U.S.

____ 19. 19 The American economy is

a.	a closed economy with components of households, business firms, and governments.
b.	a closed economy with components of households, business firms, governments and the rest of the world.
c.	an open economy with components of households, business firms, and governments.
d.	an open economy with components of households, business firms, governments, and the rest of the world.

____ 20. 20 In a circular flow diagram, when South Georgia College students are taking a test, they are

a.	considered as government and are participating in the factors’ markets.
b.	considered as business firms and are participating in the products’ market.
c.	considered as households and are participating in the factors’ markets.
d.	considered as households and are participating in the products’ markets.