ECS 1601 EXAM PACK

STUDY UNIT 1 (CH 3) Multiple Choice Questions: 1.1 Which of the following statements are correct? a. A flow variable is measured over a specific period. b. Wealth, assets, liabilities and profit are all stock variables. c. Stocks can change as a result of flows. [1] All the statements are correct. [2] a and b [3] a and c [4] b and c [5] a 1.2 Which one of the following statements explains the difference between stocks and flows? [1] Stocks have a time dimension and flows are measured at a point in time. [2] There is no clear difference between stocks and flows. [3] Flows have a time dimension and stocks are measured at a point in time. 1.3 In the circular flow of income and spending [1] investment results in a decrease in the volume of the income flow. [2] taxes result in an increase in the volume of the income flow. [3] imports result in an increase in the volume of the income flow. [4] savings result in a decrease in the volume of the income flow. The diagram below shows the circular flow of income and spending between households and firms. ECS1601 EXAM PREPS 2015 1.4 Which one of the following statements is correct? [1] Flows (2) and (3) represent income. [2] Flows (2) and (4) represent spending. [3] Flows (1) and (2) represent spending. [4] Flows (1) and (3) represent spending. Question 1.5 is based on the following diagram. 1.5 Which flows represent taxes? [1] C and D [2] E and F [3] D and E [4] A and B 1.6 Which of the following statements are correct? a. Investment is the most important form of saving in the economy. b. Financial institution acts as intermediary between those who save and those who wish to invest. c. Financial sector is the funnel through which investment is withdrawn from the circular flow of income and spending. [1] All the statements are correct. [2] a and b [3] b [4] a and c [5] None of the statements is correct. 1.7 Which of the following constitute the government? [1] national government [2] local government [3] provincial government [4] All of the above 1.8 Which of the following statements are correct about the three major flows in the economy? a. The circular flow of production, income and spending is a continuous process. b. Spending generates income. c. Production creates income. [1] All the statements are correct. [2] a and b [3] a and c [4] c [5] None of the above statements. 1.9 Which of the following statements are correct? a. The factor market is where capital goods and labour are bought and sold. b. Households are engaged primarily in production. c. Investment is the act of purchasing capital goods. [1] a [2] a and c [3] b [4] b and c [5] c 1.10 In a circular flow of income and spending a. the flow of income is in the same direction as the flow of spending. b. the firms' spending represents the expenditure of the households. c. the firms supply goods in the factor market and households buy these goods in the goods market. [1] None of the above statements [2] a [3] b [4] c [5] All the statements are correct. 1.11 Given the government in the circular flow of income and spending, which of the following is a withdrawal? a. Income taxes. b. Government expenditure. c. Transfer payments. [1] a [2] b [3] c [4] a and c [5] a and b 1.12 Which of the following statements are correct? a. South Africa has an open economy as the volume of the country's imports exceed the volume of exports. b. Imports constitute a leakage while exports constitute a withdrawal from the circular flow of income and spending. c. Payment for exports constitutes an addition and payment for imports constitutes an injection into the circular flow of income and spending. [1] a and b [2] b and