ECS1601
EXAM
PACK
2025
, lOMoARcPSD|58918787
ANSWERS TO THE REVIEW QUESTIONS
STUDY UNIT 1 (CH 3) REVIEW QUESTIONS
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.
Downloaded by Jonah Njenga ()
, lOMoARcPSD|58918787
The diagram below shows the circular flow of income and spending between households
and firms.
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.
Downloaded by Jonah Njenga ()
, lOMoARcPSD|58918787
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c. Financial sector is the funnel through which investment is withdrawn from the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.
Downloaded by Jonah Njenga ()
EXAM
PACK
2025
, lOMoARcPSD|58918787
ANSWERS TO THE REVIEW QUESTIONS
STUDY UNIT 1 (CH 3) REVIEW QUESTIONS
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.
Downloaded by Jonah Njenga ()
, lOMoARcPSD|58918787
The diagram below shows the circular flow of income and spending between households
and firms.
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.
Downloaded by Jonah Njenga ()
, lOMoARcPSD|58918787
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.
Downloaded by Jonah Njenga ()
