2.3   The Circular Flows

1) ________ the owners of the factors of production, while ________ what amounts of those factors to hire.

A) Households are; firms determine

B) Households are; the government determines

C) The government is; firms determine

D) Firms are; households determine

E) Firms are; the government determines

2) What two groups of decision makers are represented in the basic circular flow model?

A) governments and financial institutions

B) lenders and borrowers

C) wholesalers and retailers

D) bankers and regulators

E) households and firms

3) Dan missed class the day the professor covered the circular flow model. Dan asked his friend Joan to explain markets to him. Joan correctly stated that a market

A) requires a physical location for buyers and sellers to get together.

B) is any arrangement that brings buyers and sellers together.

C) must include a written contract between buyers and sellers.

D) is only a place to purchase groceries.

E) must have many buyers and only one seller, who is willing to sell to all the buyers.

4) The decisions of firms and households are

A) coordinated by markets.

B) made independently of one another.

C) controlled by but not totally coordinated by the government.

D) unexplainable by the circular flow model.

E) coordinated by but not totally controlled by the government.

5) The circular flow model is used to show the

A) flow of renewable natural resources.

B) recycling process of production materials.

C) expansions and contractions of economic activity.

D) flow of expenditures and incomes in the economy.

E) flow of supply and the flow of demand.

6) The circular flow model shows the

A) distribution of income and consumption goods across income levels.

B) combinations of the factors of production needed to produce goods and services.

C) flow of expenditure and incomes that arise from the households', firms', and governments' decisions.

D) flow of natural resources from firms to the private market to government and back to firms.

E) distribution of income to the different factors of production.

7) The circular flow model shows the flow of

A) expenditure and income throughout the economy.

B) only money throughout the economy.

C) only funds in stock and bond markets.

D) only tax payments and government expenditures.

E) goods markets and factor markets as they move through the economy.

8) In the circular flow model, there are two types of markets: the ________ market and the ________ market.

A) producers; consumers

B) households; firms

C) service; goods

D) goods; factor

E) supply; demand

9) In the circular flow model, consumption goods are bought and sold in the

A) goods market.

B) financial market.

C) factor markets.

D) government market.

E) monetary flows.

10) In the circular flow model, which of the following is on the buying side in the goods market?

i.firms

ii.households

iii.federal, state, and local governments

A) i only

B) ii only

C) iii only

D) i and ii

E) ii and iii

111. A company issues at par 9% bonds with a par value of $100,000 on April 1. The bonds pay interest semi-annually on January 1 and July 1. The cash received on July 1 by the bond holder(s) is: 

A. $1,500.

B. $3,000.

C. $4,500.

D. $6,000.

E. $7,500.

112. A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is: 

A. $3,386.30.

B. $3,500.00.

C. $3,613,70.

D. $6,633.70.

E. $7,000.00.

113. A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is: 

A. $3,500.00.

B. $7,000.00.

C. $3,286.95.

D. $6,573.90.

E. $1,750.00.

114. A company may retire bonds by: 

A. Exercising a call option.

B. The holders converting them to stock.

C. Purchasing the bonds on the open market.

D. Paying them off at maturity.

E. All of these.

115. Bonds that give the issuer an option of retiring them before they mature are: 

A. Debentures.

B. Serial bonds.

C. Sinking fund bonds.

D. Registered bonds.

E. Callable bonds.

116. A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement? 

A. $0 gain or loss.

B. $1,500 gain.

C. $1,500 loss.

D. $3,000 gain.

E. $3,000 loss.

117. A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is: 

A. $1,000 gain.

B. $1,000 loss.

C. $2,700 loss.

D. $2,700 gain.

E. $3,700 gain.

118. A company retires its bonds at 105. The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745. The issuer's journal entry to record the retirement will include a: 

A. Debit to Premium on Bonds.

B. Credit to Premium on Bonds.

C. Debit to Discount on Bonds.

D. Credit to Gain on Bond Retirement.

E. Credit to Bonds Payable.

119. A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is: 

A. $0.

B. $10,000 gain.

C. $10,000 loss.

D. $22,000 gain.

E. $22,000 loss.

120. On October 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid at the end of each year on September 30. The present value of an annuity factor for 3 years at 6% is 2.6730. The payment will be: 

A. $10,000.00.

B. $11,223.34.

C. $10,800.00.

D. $10,400.00.

E. $1,223.34.

2.3   The Circular Flows

1) ________ the owners of the factors of production, while ________ what amounts of those factors to hire.

A) Households are; firms determine

B) Households are; the government determines

C) The government is; firms determine

D) Firms are; households determine

E) Firms are; the government determines

2) What two groups of decision makers are represented in the basic circular flow model?

A) governments and financial institutions

B) lenders and borrowers

C) wholesalers and retailers

D) bankers and regulators

E) households and firms

3) Dan missed class the day the professor covered the circular flow model. Dan asked his friend Joan to explain markets to him. Joan correctly stated that a market

A) requires a physical location for buyers and sellers to get together.

B) is any arrangement that brings buyers and sellers together.

C) must include a written contract between buyers and sellers.

D) is only a place to purchase groceries.

E) must have many buyers and only one seller, who is willing to sell to all the buyers.

4) The decisions of firms and households are

A) coordinated by markets.

B) made independently of one another.

C) controlled by but not totally coordinated by the government.

D) unexplainable by the circular flow model.

E) coordinated by but not totally controlled by the government.

5) The circular flow model is used to show the

A) flow of renewable natural resources.

B) recycling process of production materials.

C) expansions and contractions of economic activity.

D) flow of expenditures and incomes in the economy.

E) flow of supply and the flow of demand.

6) The circular flow model shows the

A) distribution of income and consumption goods across income levels.

B) combinations of the factors of production needed to produce goods and services.

C) flow of expenditure and incomes that arise from the households', firms', and governments' decisions.

D) flow of natural resources from firms to the private market to government and back to firms.

E) distribution of income to the different factors of production.

7) The circular flow model shows the flow of

A) expenditure and income throughout the economy.

B) only money throughout the economy.

C) only funds in stock and bond markets.

D) only tax payments and government expenditures.

E) goods markets and factor markets as they move through the economy.

8) In the circular flow model, there are two types of markets: the ________ market and the ________ market.

A) producers; consumers

B) households; firms

C) service; goods

D) goods; factor

E) supply; demand

9) In the circular flow model, consumption goods are bought and sold in the

A) goods market.

B) financial market.

C) factor markets.

D) government market.

E) monetary flows.

10) In the circular flow model, which of the following is on the buying side in the goods market?

i.firms

ii.households

iii.federal, state, and local governments

A) i only

B) ii only

C) iii only

D) i and ii

E) ii and iii

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