The Circular Flow of Economic Activity

Question 1

Basic economic activities in the economy:

Answer 1

production
consumption
employment
income

Question 2

two economic units:

Answer 2

household
firm

Question 3

it is the basic consuming unit

Answer 3

household

Question 4

it is the basic producing unit

Answer 4

firm

Question 5

it is the use of economic resources in the creation of goods and services for the satisfaction of human wants

Answer 5

production

Question 6

it is the use of economic resources in production

Answer 6

employment

Question 7

it is the activity that takes place when the goods and services produced are ready for use

Answer 7

consumption

Question 8

a quantity measured over a particular period of time

Answer 8

flow

Question 9

a quantity measured as of a given point in time

Answer 9

stock

Question 10

anything of valued owned; a stock since it is what is owned at a particular time

Answer 10

wealth

Question 11

it is a flow; it is the rate at which we earn money

Answer 11

income

Question 12

_______ deliver economic resources to the business firms for use in production. It is because these ________ are the resource owners in the economy.

Answer 12

households

Question 13

Households can own _______, _______, and _______ which they provide the firms for use in the production of goods and services.

Answer 13

land, labor, and capital

Question 14

Once these goods are in their final form, they are now delivered to the _______ for their consumption.

Answer 14

households

Question 15

Before this flow of final goods takes place, another flow in the ___________ has to take place among different types of business firms.

Answer 15

production process

Question 16

Flow in production process consists of the flow of _______, the flow of __________, and the flow of _______

Answer 16

raw materials
intermediate goods
final goods

Question 17

These are unprocessed goods like logs, wheat, and iron ore.

Answer 17

Raw materials

Question 18

_________ are also called goods in process because they have been partially processed but are not yet ready for final use in consumption.

Answer 18

Intermediate goods

Question 19

_______ consist of the bread we buy in the bakeries, a car, the table and chairs we use at home.

Answer 19

Final goods

Question 20

The flow of physical goods is normally accompanied by a __________

Answer 20

flow of income

Question 21

The circular flow of income is in a ______ direction.

Answer 21

counterclockwise

Question 22

The flows of ______ and ________ are flows which involve financial transactions since they involve the payment of money.

Answer 22

income and consumption expenditures

Question 23

The final output of goods within the flow consists of:

Answer 23

consumers goods
capital, producers, or investment goods.

Question 24

goods used in consumption

Answer 24

consumers goods

Question 25

goods used in the production of other goods

Answer 25

capital, producers, or investment goods.

Question 26

The two flows of output and income are exactly ______

Answer 26

equal

Question 27

The value of all goods and services produced in the economy during a year is ____ to the money which business firms spent and which households as resource owners received.

Answer 27

equal

Question 28

Within the ______, the measure of output and the measure of income always result in the same value. This is because for every peso value of output produced, one peso of income is created.

Answer 28

circular flow

Question 29

The __________ makes two types of purchases in the economy.

Answer 29

government

Question 30

It hires ______ from the household sector, rents its land for its offices and factories, and borrows capital by selling securities. For these, it makes money payments to the households.

Answer 30

labor

Question 31

The ________ also buys goods from business firms and makes money payments for these purchases.

Answer 31

government

Question 32

An open economy like the Philippines maintains ________ with other countries.

Answer 32

trade relations

Question 33

First, it sells goods to these countries in the form of _____.

Answer 33

exports

Question 34

For these, foreign countries make _______ to the business firms which sell to them.

Answer 34

payments

Question 35

In turn, the Philippines also buys from other countries' goods and services called _______.

Answer 35

imports

Question 36

For these imports, Philippine households have to make ______ to foreign countries from which they buy.

Answer 36

payments

Question 37

The _________, ___________, and _______ will flow as long as households continue to consume, and as long as firms continue to produce

Answer 37

goods, resources, and money payments

Question 38

That since goods and resources flow in exchange for _________, the rate of payments flow will in the end be the same.

Answer 38

payments

Question 39

_______ is the inducing factor and the pillar of the price system. Without it, there is no price system.

Answer 39

Money

Question 40

An amount of spending that goes into the economic stream generates a corresponding amount of income which is greater than the original inflow. This is due to the ________.

Answer 40

multiplier effect

Question 41

The _______ is a number that determines the increase in income resulting from a given amount of income but in a higher amount.

Answer 41

multiplier

Question 42

it is the mainstream of the circular flow.

Answer 42

Consumption

Question 43

If the total demand for goods produced in a year equals the amount of __________, business firms would be able to sell all that they produce.

Answer 43

output

Question 44

______ constitute the first outflow from the stream.

Answer 44

Savings

Question 45

The existence of the government in the model necessitates the study of _________ that households have to pay the government on their income.

Answer 45

tax payments

Question 46

When households pay ______, the effect is to lessen their disposable income and therefore the amount available for consumption spending

Answer 46

taxes

Question 47

When we bring in the rest of the world and buy from foreign countries, this amount is spending on the part of _______ but these expenditures are not siphoned back to our economy in the form of payments to local business firms.

Answer 47

households

Question 48

Instead, these payments flow into foreign countries from whom we purchase our _______.

Answer 48

imports

Question 49

_________ have the effect of decreasing the level of economic activity and constitute our third outflow.

Answer 49

Imports

Question 50

With these _______ taking place in the economy, we are bound to experience a continuous recession of economic activity. However, this could be offset by a siphoning of funds back into the economic flow.

Answer 50

outflows

Question 51

First, when households save, the normal practice is to bring this money to banks as ______.

Answer 51

deposits

Question 52

These ______ will now use these funds by investing them, thereby making payments to the business sector or by lending them to people who likewise invest the money.

Answer 52

banks

Question 53

When the government collects the payment made by households in the form of ______, the government uses these collections to defray expenses such as infrastructure, social services, education, economic development, etc. These amounts are spent back into the flow and offset the outflow of taxes.

Answer 53

taxes

Question 54

Government spending is thus our ______

Answer 54

second inflow.

Question 55

When the Philippines exports goods to other countries, they pay us and this money goes into the _____

Answer 55

flow.

Question 56

______ are the inflows that offset the outflows of imports.

Answer 56

Exports

Question 57

When the outflows in the economy equal the _______, the level of economic activity is maintained.

Answer 57

inflows

Question 58

However, an excess of ____ over ______ will be expansionary since it will increase the level of economic activity.

Answer 58

inflows over outflows

Question 59

The opposite effect will hold when _______ exceed ______ The result is a contracting effect since it results in a decrease in the level of economic activity.

Answer 59

outflows exceed inflows.

Question 60

________ are difficult to control because they are dependent on income

Answer 60

outflows

Question 61

when ________ increases, we expect savings, taxes, and imports to increase

Answer 61

income

Question 62

_______ are easier to manipulate

Answer 62

inflows

Question 63

The proper use of _________ enables the government to encourage exports and investments and to increase its expenditures when it desires to expand the flow of economic activity.

Answer 63

policy

Question 64

Three sets of policy may be adopted:

Answer 64

monetary policy fiscal policy trade policy

Question 65

this affects savings and investment

Answer 65

monetary policy

Question 66

this controls taxes and government expenditures

Answer 66

fiscal policy

Question 67

this affects a country's exports and imports

Answer 67

trade policy