Question

7. Which one of the following is an example of the circular flow model and shows the interdependence of households and firms? a. The firms go to the resource market to supply resources that households demand and, in turn, provide households with the goods and services produced for the product markets. b. Households demand their resources from the firms in the factor markets and, in turn, supply in the product market the goods and services produced by firms. c. The firms in the factor markets pay to households in the form of wages, interest, rent and profit-for resources demanded. d. Households supply their resources to the firms in the factor markets and, in turn, demand in the product market the goods and services produced by the firms. e. The circuit is completed when the payments flow from households, through the product markets, and to the firms for the goods and services they demand. 8. When GDP is measured by adding up all the total payments made to households that furnish the resources used to produce the final goods and services, it is known as: a. the aggregate demand approach. b. net national product. c. the expenditure approach. d. the depreciation approach. e. the income approach. 9. If the underground economy is sizable, then GDP will: a. accurately reflect this subterranean activity. b. fluctuate unpredictably. c. overstate the economy's performance. d. understate the economy's performance. 10. Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then: a. both real GDP and the price level will fall. b. real GDP will rise and the price level will fall. c. real GDP will fall and the price level will rise. d. both real GDP and the price level will rise. 11. In recent years, people have benefited from greater amounts of leisure time. This trend: a. has caused GDP to rise. b. made GDP fluctuate randomly. c. is not accounted for in GDP. d. has caused GDP to fall.

Answer 1

Answer 7:

Option d. According to the circular flow model, households supply their resources to the firms in the factors market and in turn demand in the product market the goods and services produced by the firm.

Answer 8:

Option e. Income approach measures GDP by adding up the total payments made to the households that furnish the resources used to produce final goods and services.

Answer 9:

Option D. The GDP will understate the economy's performance because underground economy is not included in the value of GDP of the nation.

Answer 10:

Option a. This will shift the aggregate demand curve leftwards due to fall in consumption expenditure which leads to fall in price level and output in the economy.

Answer 11:

Option c. The value of leisure is not accounted for in the value of GDP of the nation.