ECS1601 TEST BANK
Additional Theory Questions
Question 157
Which of the following statements are correct?
a) To combat unemployment steps must be taken to stimulate the demand for labour. (correct)
b) Stricter immigration control could help to combat the unemployment problem in South Africa. (correct)
c) Efforts to increase the demand for exports do not influence the domestic demand for labour. (incorrect)
Question 158
Use the figure below which shows the trade-off between inflation and unemployment, to answer
question 158
A movement from point a to b might be caused by
1) a decrease in aggregate supply.
2) an increase in aggregate supply.
3) a decrease in aggregate demand. (correct)
4) an increase in aggregate demand.
Question 159
Which of the following statements are correct?
a) Real GDP is obtained by adjusting nominal GDP for inflation. (correct)
b) GDP per capita is calculated by dividing GDP by the number of people in the population. (correct)
c) In measuring economic growth, the production or income should be expressed in nominal terms.
Question 159
Which one of the following factors could cause an expansion in production capacity?
1) domestic demand.
2) export demand.
3) import substitution.
4) capital deepening. (correct)
Question 160
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. (correct)
b) Spending generates income. (correct)
c) Production creates income. (correct)
,Question 161
A complete business cycle is represented by movement from
1) A to B.
2) B to C.
3) A to C. (correct)
Question 162
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. (correct)
Question 163
Which of the following statements are correct?
a) The factor market is where capital goods and labour are bought and sold. (correct)
b) Households are engaged primarily in production.
c) Investment is the act of purchasing capital goods. (correct)
Question 164
In a circular flow of income and spending
a) the flow of income is in the same direction as the flow of spending. (incorrect)
b) the firms' spending represents the expenditure of the households. (incorrect)
c) the firms supply goods in the factor market and households buy these goods in the goods market.
(incorrect)
Question 165
Given the government in the circular flow of income and spending, which of the following is a withdrawal?
a) Income taxes. (correct)
b) Government expenditure.
c) Transfer payments.
Question 166
Which of the following statements are correct?
d) South Africa has an open economy as the volume of the country's imports exceed the volume of
exports. (incorrect)
e) Imports constitute a leakage while exports constitute a withdrawal from the circular flow of income and
spending. (incorrect)
, f) Payment for exports constitutes an addition and payment for imports constitutes an injection into the
circular flow of income and spending. (incorrect)
Question 167
Which of the following statements are correct?
a) Financial institution acts as intermediary between those who save and those who wish to invest.
(correct)
b) Financial sector is the funnel through which saving is channelled back into the circular flow in the form
of investment. (correct)
c) Investment is the most important form of saving in the circular flow of income and spending.
Question 168
Total spending in the economy consists of spending by
a) firms and households. (correct)
b) government and foreign sector. (correct)
c) government and financial sector.
Question 169
The three important injections into the circular flow of income and spending are
1) investment spending, government spending and imports.
2) exports, taxes and savings.
3) exports, investment and government spending. (correct)
4) savings, import and consumption.
Question 170
When economists say that money is a store of value they imply that
1) money has a greater value than other assets.
2) the value of money is not affected by inflation.
3) money can be used to measure the value of other commodities.
4) money is a way of saving purchasing power to be used when needed. (correct)
Question 171
If product prices in South Africa were stated in terms of litres of milk (instead of rands and cents), then milk
would be functioning primarily as
1) a store of value.
2) a unit of account. (correct)
3) a medium of exchange.
Question 172
Which of the following statements are correct about money?
a) Credit cards are a form of money because they can be used to make purchases.
b) Demand deposits are immediately available as a medium of exchange. (correct)
c) M3 relates to the function of money as a store of value. (correct)
Question 173
Which of the following statements are correct?
a) Banks can create demand deposits by granting credit to their clients in the form of overdraft facilities.
(correct)
b) When a person deposits cash in a cheque account there is no immediate change in the quantity of
money. (correct)
Additional Theory Questions
Question 157
Which of the following statements are correct?
a) To combat unemployment steps must be taken to stimulate the demand for labour. (correct)
b) Stricter immigration control could help to combat the unemployment problem in South Africa. (correct)
c) Efforts to increase the demand for exports do not influence the domestic demand for labour. (incorrect)
Question 158
Use the figure below which shows the trade-off between inflation and unemployment, to answer
question 158
A movement from point a to b might be caused by
1) a decrease in aggregate supply.
2) an increase in aggregate supply.
3) a decrease in aggregate demand. (correct)
4) an increase in aggregate demand.
Question 159
Which of the following statements are correct?
a) Real GDP is obtained by adjusting nominal GDP for inflation. (correct)
b) GDP per capita is calculated by dividing GDP by the number of people in the population. (correct)
c) In measuring economic growth, the production or income should be expressed in nominal terms.
Question 159
Which one of the following factors could cause an expansion in production capacity?
1) domestic demand.
2) export demand.
3) import substitution.
4) capital deepening. (correct)
Question 160
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. (correct)
b) Spending generates income. (correct)
c) Production creates income. (correct)
,Question 161
A complete business cycle is represented by movement from
1) A to B.
2) B to C.
3) A to C. (correct)
Question 162
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. (correct)
Question 163
Which of the following statements are correct?
a) The factor market is where capital goods and labour are bought and sold. (correct)
b) Households are engaged primarily in production.
c) Investment is the act of purchasing capital goods. (correct)
Question 164
In a circular flow of income and spending
a) the flow of income is in the same direction as the flow of spending. (incorrect)
b) the firms' spending represents the expenditure of the households. (incorrect)
c) the firms supply goods in the factor market and households buy these goods in the goods market.
(incorrect)
Question 165
Given the government in the circular flow of income and spending, which of the following is a withdrawal?
a) Income taxes. (correct)
b) Government expenditure.
c) Transfer payments.
Question 166
Which of the following statements are correct?
d) South Africa has an open economy as the volume of the country's imports exceed the volume of
exports. (incorrect)
e) Imports constitute a leakage while exports constitute a withdrawal from the circular flow of income and
spending. (incorrect)
, f) Payment for exports constitutes an addition and payment for imports constitutes an injection into the
circular flow of income and spending. (incorrect)
Question 167
Which of the following statements are correct?
a) Financial institution acts as intermediary between those who save and those who wish to invest.
(correct)
b) Financial sector is the funnel through which saving is channelled back into the circular flow in the form
of investment. (correct)
c) Investment is the most important form of saving in the circular flow of income and spending.
Question 168
Total spending in the economy consists of spending by
a) firms and households. (correct)
b) government and foreign sector. (correct)
c) government and financial sector.
Question 169
The three important injections into the circular flow of income and spending are
1) investment spending, government spending and imports.
2) exports, taxes and savings.
3) exports, investment and government spending. (correct)
4) savings, import and consumption.
Question 170
When economists say that money is a store of value they imply that
1) money has a greater value than other assets.
2) the value of money is not affected by inflation.
3) money can be used to measure the value of other commodities.
4) money is a way of saving purchasing power to be used when needed. (correct)
Question 171
If product prices in South Africa were stated in terms of litres of milk (instead of rands and cents), then milk
would be functioning primarily as
1) a store of value.
2) a unit of account. (correct)
3) a medium of exchange.
Question 172
Which of the following statements are correct about money?
a) Credit cards are a form of money because they can be used to make purchases.
b) Demand deposits are immediately available as a medium of exchange. (correct)
c) M3 relates to the function of money as a store of value. (correct)
Question 173
Which of the following statements are correct?
a) Banks can create demand deposits by granting credit to their clients in the form of overdraft facilities.
(correct)
b) When a person deposits cash in a cheque account there is no immediate change in the quantity of
money. (correct)
