The Circular Flow Diagram Sample Assignment

The circular flow diagram is best described as a(n)

Model that clarifies the relationship between spending and income.

Aggregate demand is the sum of 

C+I+G+(X - IM)

Economist before Keynes assumed the equilibrium GDP occurred


Employee compensation accounts for about what percentage of national income?


After taking office in 2009, President Obama believed in the need for a fiscal stimulus. The proper fiscal policy to reflect this could include a(n)

Increase in government purchases

The type of currency in circulation in the modern U.S. economy is almost entirely

Fiat money

If the Fed increases the reserve ratio, what happens to bank reserves and the money supply?

Reserves increase and the money supply decreases.

If nominal GDP is $7,700 billion and M 1 is $1,000 billion, then velocity is?


The speed with which money circulates through the economy is called?

Velocity of Circulation

Which of the following is an example of active fiscal policy?

Congress passes a major tax increase in an inflationary period.

Monetization of the deficit (or debt) means that

The Fed buys newly issued debt and increases the money supply.

Capital gains tax cuts inevitably benefit

workers in large cities.

To eliminate an inflationary gap, the aggregate demand curve should

Shift inward

If currency appreciates, a country's net exports

fall and AD decreases.

Economic theory shows that the current account deficit is always equal to the capital account surplus. This means that 

When a country exports more goods and services than imports, it also imports assets  equal to the difference.

When aggregate demand decreases rapidly, the economy is likely to experience


Aggregate demand is the total demand for 

All final goods and services

If disposable income decreases by $400 billion and consumption increases by $300 billion, the MPC equals


Crowding out can best be defined as

Government deficits increase  interest rates and decrease private investment.

A fiscal policy that reduces taxes or increases government spending will cause a(n)

Increase in real GDP and an increase in the price level.

On May 15, 2002, it cost U.S. $0.03 to buy on Russian ruble. How many Russian rubles would U.S. $1 buy?


The balance of payments is divided into three major accounts, the :

current account, settlement account and the capital account.

The law of one price indicates that the:

Prices will adjust so that the price of similar goods in different countries is the same.

If the FED above buys 200 billion in bonds from a bank how much bigger can the money supply become?

2000 Billion

Opportunity cost can best be defined as the 

Value of what must be given up in order to acquire an item.

The purchasing power of money

Refers to the amount of a good or service consumers can purchase with money; diminishes over time due to inflation; and is affected by the interest rate and inflation rate.

Economists make assumptions because

Analysis without assumptions would be impossibly complex.

Economic models are often expressed in 

Equations, words and graphs

The United States produces ______ of what it consumes, and consumes ______ of what it produces.

most, most

What factors are held constant along a given demand curve for a good?

Consumer incomes and the prices of other goods.

The amount of ice cream in Boston was increased by  500 quarts. This change in quantity sold and price may have been caused by

The release of medical study showing that ice cream consumption improves mental health.

In relation to prices that would prevail in an uncontrolled market, prices charged by a black market are usually

Higher, since black marketers expect compensation for the risk of being caught.

How do macroeconomists differ from microeconomists? 

The basic tools of analysis, the underlying principles, the use of abstractions and models, the problems studied

Gross Domestic Product is the

Most comprehensive measure of total output in the United States.

Keynes' great book offered the promise of ending depressions through

Government influencing aggregate demand.


are common feature of any market economy.

When the growth rates of actual and potential GDP diverge, they usually diverge because 

Actual GDP growth falls below potential GDP growth

As the unemployment rate rises

Lost national output rises.

Whist of the following countries has not experienced hyperinflation in the twentieth century?

United States

Economists expect the relationship between consumption and disposable income to be


In the circular flow diagram saving 

is a leakage and investment is an injection.

The aggregate supply curve is

Relatively flat at low levels of output

When inflation occurs, consumers

Suffer a decrease in real wealth

When real GDP falls for two consecutive quarts the economy is in a


People who want to work but have stopped looking for work because they could not find jobs after actively searching are called

Discouraged workers

A firm's value added can be measured as the value of its

Total sales, less purchases of intermediate goods.

Economists and others use economic theory

as a partial basis for public policy recommendations

Government ownership of property and resources in the United States is 

Relatively rare; the United States is mostly privatized.

Compare the openness of the US economy to 199 to the openness in the past

The United States is more open now  than it was about 40 years

Along with changes in the level of economic activity, measured by GDP, what other economic variable tends to rise and fall as a consequence?


Most Americans 

Overestimate corporate profits. 

Consumers spending accounts for what share of GDP?


Which of the following illustrates government acting as a referee?

Enforcing contract provisions between buyer and seller.

Progressive income taxes are designed to 

Make the distribution of income more equal.

In a market economy, the decisions regarding allocation of resources is made by

automatic forces of supply and demanded

In an attempt to boost enrollment, a private college in Iowa offered free tuition.  how did this affect their opportunity cost of attending college?

the opportunity cost was lower than if tuition was charged, but there was still a cost.

The opportunity cost of increased production of some good can be measured with 

The slope of the production possibilities curve.

One motive for "fighting the invisible hand" is

Unhappiness about the prices that occur in free markets, envy towards those who apparently benefit from certain prices, and a desire to have government "correct" some problems.

Each point on the demand curve is

A quantity demanded at that price.

An upward-sloping supply curve shows that

suppliers are wiling to increase production of their goods if they can receive higher prices for them

Economists emphasize the importance of _____ in analyzing supply.


Nominal GDP is 

GDP measured in current prices

Which of the following is included in GDP 

The cost of government-provided social services

International per capita GDP comparisons are misleading when countries involved differ greatly in 

the percentage of economic activity that is transacted in organized markets.

Stagflation can be defined as a combination of 

Economic stagnation and inflation

If the government uses stabilization policies to reduce inflation, the economy may have to suffer

higher rates of unemployment

An increase in capital stock will shift the production function


The arithmetic difference between the nominal rate of interest and the expected rate of interest and the expected rate of inflation is 

real interest rate

Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2%. At the end of this six month period, prices have risen by 4%

Purchasing power has been redistributed to Phoebe.

If inflation is expect by both borrowers and lends, then we would expect

Real rates to be lower than nominal rates of interest.

When nominal interest rates are held below inflation rates, then households will have an incentive to