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Chapter 8 Questions

This document contains 8 multiple choice questions about concepts related to national income and the circular flow of income, including: 1. Identifying injections and leakages from the circular flow. 2. Items included in national income measurement. 3. Calculating the decrease in national income resulting from a strike. 4. Determining the change in national income from a worker becoming employed. The questions assess understanding of key economic indicators like GDP, inflation, purchasing power parity and how they relate to measuring living standards between countries.

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87 views3 pages

Chapter 8 Questions

This document contains 8 multiple choice questions about concepts related to national income and the circular flow of income, including: 1. Identifying injections and leakages from the circular flow. 2. Items included in national income measurement. 3. Calculating the decrease in national income resulting from a strike. 4. Determining the change in national income from a worker becoming employed. The questions assess understanding of key economic indicators like GDP, inflation, purchasing power parity and how they relate to measuring living standards between countries.

Uploaded by

hrfjbjrfrf
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1. Which of the following correctly identifies injections from the circular flow of income?

trade surplus public sector surplus private sector surplus


(exports – imports) (taxes – government (saving - investment)
spending)
A no no No
B Yes No no
C No no yes
D yes yes Yes

2. Which of the following is not included in the national income when it is measured by the income
method?
A) gross trading profits of public companies
B) gross domestic fixed capital formation
C) income from self-employment
D) trading surpluses of private companies

3. The following figures were estimated at the end of a strike.


£ million
value of lost output value 2000
value of extra leisure time to strikers 50
decrease in tax revenue 200
increase in social security payments 150
extra payments to police during strike 150

What was the resulting decrease in measured national income?


A) £1,850 million
B) £1,950 million
C) £2,050 million
D) £2,500 million

4. A previously self-employed businessman with an income of £7,000 per annum decided to become
employee of a manufacturing company at a salary of £8,000 per annum. In closing down his
business, he had to dismiss two assistants each previously receiving an annual salary £2.000. Each
of the assistant subsequently received state social security benefits worth £1,000 per annum.
-7000+8000-(2000x2)
What was the resulting change in national income?
A) an increase of £3,000
B) an increase of £1,000
C) a decrease of £1,000
D) a decrease of £3,000

5. The amount that retired workers are allowed to earn each week without losing any of their pension
is increased. This leads to an increase in the number of pensioners in employment. 6 What will be
the most likely effect on GDP per head and on the net welfare of pensioners?
GDP per head net welfare of pensioners
A decrease increase
B Decrease Uncertain
C Increase Increase
D increase uncertain

6. The table below shows real national income per head measured in US dollars for countries X and
Y.
country X $15,000
country Y $ 21,000

Why might these figures give an unreliable indication of living standards in country X compared
with country Y?
A) The dollar value of country Y's currency is higher than that of country X.
B) The exchange rate between country X and country Y does not reflect the relative purchasing
power of their two currencies.
C) Aggregate price level is higher in country Y.
D) Country X has a larger population.

7. During a year, a country's national income in nominal terms increased by 2% (include


inflation), prices increased by 4% and the total population increased by 2%.
What was the approximate change in real income per head?
A) a decrease of 1%
B) a decrease of 2%
C) an increase of 1%
D) an increase of 2%

(2-4)/2=-1%

8. The table below shows the value of inputs and outputs at various stages of a production
process.

Activity Raw materials ($ ‘000) Wages, Sales ($ ‘000)


Home Imported salaries and Total Of which
produced profit ($ exports
thousands)
Forester 10 0 10 20 5
Paper mill 15 10 5 30 5
Publisher 25 5 10 40 0
Bookseller 40 10 15 65 10
90 25 40 155 20
What is the total value added in this production process?
A. $40000
B. $55000
C. $65000
D. $130000

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