1. If the selling price of a product is $10, the average total cost is $8, and t
ID: 1168822 • Letter: 1
Question
1. If the selling price of a product is $10, the average total cost is $8, and total sales are 5,000 units, the total profit will be
A) $5,000
B) $8,000
C) $10,000
D) $20,000
2. The total payment of resource income in the economy is equal to the total value of the output.
True or False
3.A balanced federal budget tends to have a neutral effect on the economy.
True or False
4.In the simple circular flow model, if planned I exceeds planned S, then
A) the economy is not at equilibrium
B) the size of the circular flow is increasing
C) if the economy is at full employment, then prices will rise
D) all of the above
5.The expansionary effect of a high government budget deficit can be offset by the contractionary effect of a surplus in the nation’s balance of trade.
True or False
6.The level of total output and the price level can be affected by changes in consumption.
True or False
7.If the economy is at less than full employment and exports exceed imports (while other planned injections equal other planned leakages), the economy
A) remains stable
B) expands
C) contracts
D) has falling prices
8.The operation of the total economy can best be demonstrated by a
A) merry-go-round
B) circular flow
C) Ferris wheel
D) roller coaster
Explanation / Answer
(1) (C)
Profit = Output x (Selling price - average total cost)
= 5,000 x $(10 - 8) = $10,000
(2) TRUE.
This is the measurement of GDP (Total value of output) using the Income approach.
(3) (D)
All statements are correct. An investment higher than saving is an injection into the circular flow, which disrupts equilibrium, increases size of the circular flow and if there economy was in full employment level, price level will rise.
(4) TRUE
GDP = Consumption + Investment + Government spending + Net exports (Trade balance)
If government spending increases, ceteris paribus Trade balance (Trade Surplus) decreases to keep GDP same. A decrease in trade surplus is a contractionary effect.
(5) TRUE
As in the GDP equation above, consumption is a component of GDP (Output). An increase in consumption will increase output and increase price level.
(6) (B)
In the GDP equation used above, Net Exports = Exports - Imports
So, if Exports > Imports, GDP will increase and economy will expand.
(7) (B)
The economy is best understood as a circular flow of income.
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