Assignment 4
1. Consider these annual income figures of seven families: $17,000, $18,000, $17,000, $17,000,
$19,000, $45,000, $19,000. What is the median value?
a)
b)
c)
d)
e)
$18,000
$17,000
$21,714
$19,000
$22,000
2. The circular flow model
a)
b)
c)
d)
e)
describes microeconomic activity within a capitalist system.
illustrates the consequences of minimum-wage legislation.
explains the effect of government-imposed price controls.
focuses on aggregate economic activity.
ignores the role of international trade.
3. In economics, one or more persons who occupy the same unit of housing are considered a(n)
a)
b)
c)
d)
e)
family.
organization.
enterprise.
business firm.
household.
4. According to the text, because the United States is the largest economy in the world,
a)
b)
c)
d)
e)
it is surprising that the U.S. has fewer firms than any other industrialized nation.
none of the ten largest firms in the world are U.S. firms.
the ten largest firms in the world are U.S. firms.
it is surprising that none of the 20 largest firms in the world are U.S. firms.
more than half of the ten largest firms in the world are U.S. firms.
5. According to the text, Adam Smith described the flow of resources in a market economy as
a) an invisible hand that reaches out and guides people to do good.
b) an invisible hand that reaches out and guides resources because of the incentive to earn
a normal profit.
c) an invisible hand that reaches out and guides resources to their lowest valued use.
d) an invisible hand that reaches out and guides people to do what is best.
e) an invisible hand that reaches out and guides resources to their highest valued use.
6. A firm has obtained a patent and is producing blade sharpeners for disposable razor blades. In
a market system, this product will not be produced for very long if at all because
a)
b)
c)
d)
e)
entrepreneurs will not finance it.
business managers do not want it.
the government will not subsidize it.
consumers do not want it.
stockholders will not invest.
7. In his book <i>The Wealth of Nations</i>, Adam Smith states that the fundamental explanation
of human behavior is
a)
b)
c)
d)
e)
the intrinsic drive to self-advance.
the need to reproduce.
the rational pursuit of self-interest.
the desire to dominate more countries.
the need to make war.
8. According to the text, foreign buyers and sellers
a)
b)
c)
d)
e)
have an effect on U.S. buyers and sellers by causing shortages.
have a significant effect on economic conditions in the United States.
have almost no effect on U.S. buyers and sellers.
have a very small effect on economic conditions in the United States.
have an effect on U.S. buyers and sellers through business investment.
9. Spending by which sector is the largest component of spending in the economy?
a)
b)
c)
d)
e)
Households
Government
Sole proprietors
Firms
Investors
10. Which statement is true for the United States?
a) Corporations generate less revenue than proprietorships even though there are more
corporations than proprietorships.
b) Most partnerships have revenue exceeding $75,000.
c) There are more sole proprietorships than corporations.
d) There are more corporations than sole proprietorships.
e) The large number of partnerships in the low-revenue category account for most
partnership revenues.
11. In economics, investment includes all of the following activities <i>except</i>
a)
b)
c)
d)
e)
the purchase of machinery.
the purchase of an office.
the purchase of tools.
the purchase of a warehouse.
the purchase of stocks or bonds.
12. In a market system, who decides what goods and services are produced?
a)
b)
c)
d)
e)
Some regional economic segment of the United States
The national economy
The large firms
The multinational firms
Consumers
13. In the figure above, what is total income for the household sector?
a)
b)
c)
d)
e)
$10,000
$25,000
$35,000
$42,500
$45,000
14. Which of the following would be considered an investment?
a)
b)
c)
d)
e)
The deposit of $2,000 in a passbook account
The purchase of a new drilling machine by the Schmidt Construction Company
The purchase of a share of IBM stock
The purchase of a new winter coat
The purchase of U.S. Treasury bills
15. When we compare household and investment expenditures in the United States over the
period 1959 to 1997, we find that
a)
b)
c)
d)
e)
investment spending fluctuates more than consumption spending.
investment spending exceeds household spending for most of these years.
investment spending is much larger than consumption.
consumption increases more unevenly than investment.
investment accounts for roughly one-tenth of consumption spending.
16. LDCs are generally located in which region of the world?
a)
b)
c)
d)
e)
Africa, Asia, and Latin America
Asia, North America, and Africa
Latin America and Western Europe
North America and Western Europe
Australia
17. The fast-food business has changed dramatically since the 1950s, going from eat-in
restaurants to drive-through outlets to home-delivery chains. The reason for this change is
a) businesses could make higher profits with the changes because they could rip off the
customer.
b) the fast-food businesses get tired of producing the same thing time after time.
c) businesses wanted the changes and were willing and able to pay for them.
d) consumers wanted the changes and businesses had to respond even though they lost
money on the deal.
e) consumers wanted the changes and were willing and able to pay for them.
18. The circular flow model for the private sector shows that
a)
b)
c)
d)
e)
net exports are always equal to zero.
factors of production are demanded only by the government.
business firms are the revenue source for consumers.
financial intermediaries use the deposits from households to make loans to businesses.
the goods and services produced by business firms are sold through resource markets.
19. The figure above illustrates
a)
b)
c)
d)
e)
how when producers change their preferences, the consumers respond.
how profits increase as demand decreases.
how when consumers change their preferences the change turns into a fad.
how when consumers change their preferences, the producers respond.
how when consumers change their preferences, the market responds by increasing
production of the item shown.
20. Income in the private sector of the economy is determined by
a) households, businesses, and the international sector.
b) households alone.
c) international trade alone.
d) private entrepreneurs alone.
e) government and businesses.
Essay Questions
1. Explain the private-sector circular flow model in the context of a barter economy. How do the
results differ from those in a monetary economy?
2. Assume that investment expenditures exceed total household saving and also assume that net
exports are negative. How would household spending have to adjust to ensure that the total
domestic output value equals total income?