Revision 3

1. All of the following are leakages from the circular flow of the economy EXCEPT
 Import
Investment
 Taxes
 Saving

2. The most important (largest) part of the GDP equation in most developed countries is:
 Net exports
 Investment
 Consumption
 Taxes

3. If you wanted to consider how well off the average person was in a particular country, which
version of GDP would you use?
 GDP in PPPs
 Real GDP
 GDP per capita
 Nominal GDP

4 If total injections are greater than total leakages in the circular flow, the effect on the economy
will be:

 To cause it to grow

 To cause it to shrink

 To cause it to remain stable

 None of these answers is correct

5 The element that does NOT form part of the GDP equation is

 Gross private savings

 Gross fixed capital formation, or investment

 Gross private domestic consumption

 Net exports, or X-M

6. Which of the following two indicators typically show an INDIRECT or inverse relationship
(i.e., move in opposite directions) across a normal business cycle?

 inflation and unemployment

  inflation and GDP growth

 unemployment and GDP growth

 both a and c are correct

 none of these are correct

7.The most important difference between real and nominal GDP is

 That real GDP includes the effects of economic growth on the environment, while nominal
GDP does not

 That real GDP shows how much individual wellbeing has risen, while nominal GDP does not

 That real GDP excludes the effect of price changes over time, so we can get a sense of how
much output has increased in the economy

 That real GDP includes C+I+G+(X-M), while nominal GDP includes other elements of
aggregate demand

8. The ideal rate of growth for an economy

 would be the highest possible growth rate

 would involve growing at exactly the same rate, year after year
 is that rate where inflation has not yet begun to accelerate, but unemployment is at or is
approaching a reasonable level
 None of these answers is correct
Question: Please explain why the following statements is True or False

1. Real GDP may remain constant, despite the increase in nominal GDP by 15%. (T)
2. In the case of an economic boom, the general prices of goods and services decrease (F)
3. The deflationary gap occurs when the actual output is greater than likely potential (F)
4. In the case of a crisis such as Coronavirus, leakages expected to be less than injections within
the circular flow model.(F)