Question Details

If we compare the four sources of spending in the economy we see that



1) In the circular flow of income
A) households demand goods and services that are supplied by firms, and the firms demand
factors that are supplied by intermediate firms.
B) households demand goods and services that are supplied by firms, while supplying
factors that are demanded by firms.
C) households sell goods and services while firms sell factors.
D) households buy goods and services while firms sell goods and services. Firms obtain labor
from households, capital from government, and raw materials from other firms.
2) The circular flow shows that the household sector earns its income by
A) selling factors of production.
B) buying factors of production.
C) selling goods and services.
D) selling financial assets.
3) The circular flow of income shows that
A) households transact only in the goods market.
B) governments purchase goods and services.
C) firms generally are the demanders in the goods markets and suppliers in the factor
markets.
D) None of the above answers is correct.
4) Which of the following is true regarding the circular flow diagram?
I. ʺAggregate incomeʺ is the flow of income earned by firms.
II. Retained earnings are considered income earned by firms rather than part of householdsʹ
income.
III. The government, households, and firms all have transactions in the goods market.
A) I only
B) I and II
C) I and III
D) III only

5) If we compare the four sources of spending in the economy we see that
A) household consumption is the smallest.
B) government expenditure is the largest.
C) business investment is the largest.
D) household consumption is the largest.


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