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Economic Theory

Multiple-Choice Questions

1. The circular flow diagram shows:
a) the flows between different sectors of the economy;

b) how the prices of factors are determined;
c) the effects of inflation in a simple economy;

d) how nominal GDP is distinct from real GDP.

2. When comparing nation’s economic position with other one should
see its:

a) GDP;
b) Per Capita GDP;
c) currency in circulation;

d) none of the above.

3. The income approach to measuring GDP sums together:
a) compensation of employees, rental income, corporate profits,

net interest, proprietors’ income, indirect taxes paid, and capital
consumption expenditures and subtracts subsidies paid by the
government;

b) compensation of employees, rental income, corporate profits,
net interest, proprietors’ income, subsidies paid by the
government, indirect taxes paid, and capital consumption
expenditures;

c) the sales of each firm in the economy;
d) the costs of each firm in the economy and then subtracts

indirect business taxes and the capital consumption allowance.

4. Which of the following items is not a component of the expenditure
approach to measuring GDP?

a) social security payments made by the government;
b) purchases of food made by families;
c) purchases of U.S.-made movies by Europeans;

d) purchases of new homes made by families.

5. Net exports of goods and services equal the:
a) exports of goods and services minus the imports of goods and

services;

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