National Income and Macroeconomic Equilibrium: GDP, Circular Flow, Injections/Withdrawals, Multiplier, Equilibrium Income

1. National income measures

A the total value of output, income or expenditure in an economy over a period of time
B only the income earned by government workers
C only the value of exports minus imports
D the total wealth owned by households at one point in time

2. Gross domestic product measures

A total output produced within a country’s borders
B total output produced only by citizens living abroad
C total savings in commercial banks
D total government tax revenue

3. Gross national income differs from GDP because GNI includes

A net primary income from abroad
B only government spending
C only imported goods
D depreciation only

4. Nominal GDP measures output

A at constant prices
B at current market prices
C excluding all price changes
D excluding services

5. Real GDP measures output

A adjusted for inflation
B including inflation only
C measured only by household spending
D measured only in physical units

6. If nominal GDP rises by 12% and inflation is 7%, real GDP has approximately risen by

A 5%
B 7%
C 12%
D 19%

7. GDP per head is calculated as

A GDP / population
B population / GDP
C GDP × population
D GDP – population

8. GDP per head may be misleading as a welfare measure because it

A ignores income distribution
B includes output data
C is impossible to compare
D always measures happiness accurately

9. Which item is most likely excluded from official GDP?

A unpaid household work
B government spending on schools
C output of factories
D exports of services

10. Which activity should be included in GDP?

A sale of newly produced cars
B transfer of second-hand shares
C unpaid care by family members
D illegal activity if not recorded officially

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. The output method of measuring GDP adds

A value added by each sector of production
B only wages paid to workers
C only household consumption
D only tax revenue collected by government

12. Value added is

A value of output minus value of intermediate goods
B value of imports minus exports
C wages minus profits
D total revenue minus income tax

13. A bakery buys flour for $200 and sells bread for $750. Its value added is

A $200
B $550
C $750
D $950

14. The income method of measuring GDP includes

A wages, rent, interest and profit
B consumption, saving and imports only
C taxes, subsidies and exports only
D transfer payments only

15. Which is excluded from the income method because it is not payment for current production?

A unemployment benefit
B wages
C rent
D profit

16. The expenditure method of measuring GDP is commonly written as

A C + I + G + X – M
B C + S + T + M
C W + R + I + P
D X + M – G

17. In the expenditure approach, investment means

A spending on capital goods and changes in inventories
B buying shares from another household
C putting money in a savings account
D paying income tax

18. In GDP expenditure, imports are subtracted because

A they are produced abroad but included in domestic spending
B they are always illegal
C they are produced domestically
D they are transfer payments

19. If C = 500, I = 120, G = 180, X = 90 and M = 140, GDP is

A 610
B 750
C 790
D 1030

20. If consumption rises but imports rise by the same amount, other things equal, GDP

A remains unchanged
B rises by the full increase in consumption
C falls by the full increase in imports
D becomes zero

21. The circular flow of income shows

A flows of income, output and expenditure between sectors
B only the government budget balance
C only movements of exchange rates
D only the population structure

22. In the simple two-sector circular flow, households provide firms with

A factors of production
B imports
C indirect taxes
D subsidies

23. In the simple two-sector circular flow, firms provide households with

A goods and services plus factor incomes
B taxes only
C imports only
D leakages only

24. A leakage/withdrawal from the circular flow is

A saving
B investment
C exports
D government spending

25. Which is a withdrawal from the circular flow?

A taxation
B investment
C exports
D government expenditure

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Which is a withdrawal from the circular flow?

A imports
B exports
C investment
D consumption

27. Which is an injection into the circular flow?

A investment
B saving
C taxation
D imports

28. Which is an injection into the circular flow?

A government spending
B taxation
C saving
D imports

29. Which is an injection into the circular flow?

A exports
B imports
C saving
D income tax

30. Equilibrium national income occurs when

A injections equal withdrawals
B withdrawals are greater than injections
C injections are greater than withdrawals
D saving is always zero

31. If injections exceed withdrawals, national income will tend to

A rise
B fall
C remain unchanged
D become zero

32. If withdrawals exceed injections, national income will tend to

A rise
B fall
C remain unchanged
D become infinite

33. In a closed economy with no government, equilibrium occurs where

A S = I
B X = M
C T = G
D C = M

34. In an open economy with government, equilibrium occurs where

A S + T + M = I + G + X
B S + I + M = T + G + X
C C + S + T = X + M
D I + T + X = S + G + M

35. If S = 80, T = 60, M = 100, I = 90, G = 70 and X = 110, national income will tend to

A rise
B fall
C remain unchanged
D become zero

36. If S = 120, T = 80, M = 90, I = 70, G = 60 and X = 80, national income will tend to

A rise
B fall
C remain unchanged
D double immediately

37. Aggregate demand is

A total planned spending in an economy at different price levels
B total supply of labour only
C total exports minus imports only
D total government borrowing only

38. In a closed economy with government, aggregate demand is

A C + I + G
B C + I + G + X – M
C S + T + M
D W + R + P

39. In an open economy, aggregate demand is

A C + I + G + X – M
B C + S + T + M
C W + R + I + P
D GDP / population

40. An increase in autonomous investment will initially

A increase injections
B increase withdrawals
C reduce aggregate demand
D reduce equilibrium income immediately

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. The multiplier measures

A the final change in national income resulting from an initial change in injection
B the rate of inflation
C the unemployment rate
D the amount of money banks hold as reserves

42. The multiplier exists because

A one person’s spending becomes another person’s income
B all income is saved
C imports are always zero
D taxes always rise more than income

43. The simple multiplier is calculated as

A 1 / MPS
B 1 / MPC
C MPC / MPS
D MPS / MPC

44. If MPC = 0.8, the multiplier is

A 0.8
B 1.25
C 4
D 5

45. If MPS = 0.25, the multiplier is

A 0.25
B 1.25
C 4
D 5

46. If MPC = 0.6 and investment increases by $50m, the final increase in national income is

A $30m
B $50m
C $80m
D $125m

47. If MPS = 0.2 and government spending rises by $100m, the final increase in national income is

A $20m
B $100m
C $500m
D $1000m

48. In an open economy with taxes, the multiplier is smaller because

A savings, taxes and imports withdraw income from the circular flow
B exports are always zero
C consumers spend more than their income forever
D injections disappear completely

49. If the marginal propensity to withdraw rises, the multiplier

A falls
B rises
C becomes infinite
D becomes negative automatically

50. Which chain is most accurate?

A injection rises → income rises → consumption rises → further income rises → final GDP rises by more than initial injection
B withdrawal rises → income rises → consumption rises → multiplier becomes larger
C MPC falls → multiplier rises → GDP rises automatically
D imports rise → withdrawals fall → multiplier increases

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. Answer: A

A correct: national income measures the value of total output, total income or total expenditure in an economy over a period.
B wrong: it is not only government workers’ income.
C wrong: exports minus imports is net exports/trade balance.
D wrong: wealth is a stock of assets, not income over time.

2. Answer: A

A correct: GDP measures total output produced within a country’s borders.
B wrong: citizens’ output abroad relates more to national income concepts.
C wrong: bank savings are not GDP.
D wrong: tax revenue is government income, not total production.

3. Answer: A

A correct: GNI = GDP plus net primary income from abroad.
B wrong: government spending is one component of expenditure.
C wrong: imports are subtracted in expenditure GDP.
D wrong: depreciation is linked to net domestic product, not GNI difference.

4. Answer: B

A wrong: constant prices describe real GDP.
B correct: nominal GDP is measured at current market prices.
C wrong: removing price changes gives real GDP.
D wrong: services are included in GDP.

5. Answer: A

A correct: real GDP removes inflation to show actual output changes.
B wrong: including inflation describes nominal GDP.
C wrong: GDP is not measured only by household spending.
D wrong: GDP is measured by value, not only physical units.

6. Answer: A

A correct: approximate real GDP growth = nominal GDP growth – inflation = 12% – 7% = 5%.
B wrong: 7% is the inflation rate.
C wrong: 12% is nominal GDP growth.
D wrong: 19% adds inflation instead of removing it.

7. Answer: A

A correct: GDP per head = GDP / population.
B wrong: this reverses the formula.
C wrong: multiplying gives a meaningless figure.
D wrong: subtracting population is meaningless.

8. Answer: A

A correct: GDP per head is an average and hides inequality.
B wrong: including output data is the point of GDP, not the weakness.
C wrong: comparisons are possible, though imperfect.
D wrong: GDP per head does not measure happiness accurately.

9. Answer: A

A correct: unpaid household work is usually excluded because it is not recorded as market production.
B wrong: government school spending is included.
C wrong: factory output is included.
D wrong: service exports are included.

10. Answer: A

A correct: newly produced cars are current output and included in GDP.
B wrong: second-hand share transfers are financial transactions, not new production.
C wrong: unpaid family care is usually excluded.
D wrong: unrecorded illegal activity is normally excluded from official GDP.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Answer: A

A correct: the output method adds value added by each sector to avoid double counting.
B wrong: wages belong to income method.
C wrong: household consumption is part of expenditure method.
D wrong: tax revenue alone is not GDP.

12. Answer: A

A correct: value added = value of output – value of intermediate goods.
B wrong: imports minus exports is trade balance reversed.
C wrong: wages minus profits is not value added.
D wrong: revenue minus income tax is not value added.

13. Answer: B

A wrong: $200 is the intermediate input cost.
B correct: value added = $750 – $200 = $550.
C wrong: $750 is sales/output value.
D wrong: $950 adds output and input.

14. Answer: A

A correct: income method adds factor incomes: wages, rent, interest and profit.
B wrong: these are not the income method.
C wrong: taxes/subsidies may adjust market prices, but this option is not the income method.
D wrong: transfer payments are excluded.

15. Answer: A

A correct: unemployment benefit is a transfer payment, not income from current production.
B wrong: wages are payment for labour in production.
C wrong: rent is factor income.
D wrong: profit is factor income.

16. Answer: A

A correct: expenditure GDP = C + I + G + X – M.
B wrong: saving and taxes are withdrawals, not expenditure GDP components.
C wrong: this resembles income categories, not expenditure.
D wrong: this omits consumption and investment and treats imports wrongly.

17. Answer: A

A correct: investment means spending on capital goods and changes in inventories.
B wrong: buying existing shares is a financial transaction.
C wrong: saving in a bank is not investment in GDP accounts.
D wrong: income tax is a withdrawal.

18. Answer: A

A correct: imports are produced abroad, so they must be subtracted if included in spending.
B wrong: imports are not illegal.
C wrong: imports are not domestic production.
D wrong: imports are payments for foreign goods/services, not transfer payments.

19. Answer: B

A wrong: 610 subtracts too much.
B correct: GDP = 500 + 120 + 180 + 90 – 140 = 750.
C wrong: 790 ignores one component or miscalculates.
D wrong: 1030 adds imports instead of subtracting them.

20. Answer: A

A correct: if C rises by the same amount as M, net domestic expenditure is unchanged because imports are subtracted.
B wrong: imported consumption does not increase domestic output.
C wrong: consumption rise offsets the import subtraction.
D wrong: GDP does not become zero.

21. Answer: A

A correct: circular flow shows income, output and expenditure moving between sectors.
B wrong: budget balance is only government finance.
C wrong: exchange rates are external monetary prices.
D wrong: population structure is demographics.

22. Answer: A

A correct: households provide labour, land, capital and enterprise to firms.
B wrong: imports come from abroad.
C wrong: indirect taxes go to government.
D wrong: subsidies come from government.

23. Answer: A

A correct: firms provide goods/services and pay factor incomes to households.
B wrong: taxes go to government.
C wrong: imports come from foreign producers.
D wrong: leakages leave the circular flow.

24. Answer: A

A correct: saving is a withdrawal because income is not spent on domestic goods/services.
B wrong: investment is an injection.
C wrong: exports are injections.
D wrong: government spending is an injection.

25. Answer: A

A correct: taxation withdraws income from households/firms.
B wrong: investment injects spending.
C wrong: exports inject foreign spending.
D wrong: government expenditure is an injection.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Answer: A

A correct: imports are withdrawals because spending leaves the domestic circular flow.
B wrong: exports are injections.
C wrong: investment is an injection.
D wrong: consumption is part of domestic spending, not a withdrawal.

27. Answer: A

A correct: investment adds spending to the circular flow.
B wrong: saving is a withdrawal.
C wrong: taxation is a withdrawal.
D wrong: imports are withdrawals.

28. Answer: A

A correct: government spending injects demand into the economy.
B wrong: taxation withdraws income.
C wrong: saving withdraws income.
D wrong: imports withdraw spending abroad.

29. Answer: A

A correct: exports bring foreign spending into the domestic economy.
B wrong: imports are withdrawals.
C wrong: saving is a withdrawal.
D wrong: income tax is a withdrawal.

30. Answer: A

A correct: equilibrium national income occurs when planned injections equal planned withdrawals.
B wrong: if withdrawals exceed injections, income falls.
C wrong: if injections exceed withdrawals, income rises.
D wrong: saving does not have to be zero.

31. Answer: A

A correct: extra injections increase spending and output, so national income tends to rise.
B wrong: income falls when withdrawals exceed injections.
C wrong: imbalance causes change.
D wrong: income does not become zero.

32. Answer: B

A wrong: income rises when injections exceed withdrawals.
B correct: withdrawals greater than injections reduce spending, so national income falls.
C wrong: imbalance changes income.
D wrong: income does not become infinite.

33. Answer: A

A correct: in a closed economy with no government, injections = withdrawals means I = S.
B wrong: X and M do not exist in a closed economy.
C wrong: T and G do not exist without government.
D wrong: C = M is irrelevant.

34. Answer: A

A correct: equilibrium requires withdrawals S + T + M equal injections I + G + X.
B wrong: this mixes injections and withdrawals incorrectly.
C wrong: this is not the equilibrium condition.
D wrong: this also mixes categories incorrectly.

35. Answer: A

A correct: withdrawals = S + T + M = 80 + 60 + 100 = 240; injections = I + G + X = 90 + 70 + 110 = 270. Injections exceed withdrawals, so income rises.
B wrong: income falls only if withdrawals exceed injections.
C wrong: they are not equal.
D wrong: income does not become zero.

36. Answer: B

A wrong: injections are lower than withdrawals.
B correct: withdrawals = 120 + 80 + 90 = 290; injections = 70 + 60 + 80 = 210. Withdrawals exceed injections, so income falls.
C wrong: there is disequilibrium.
D wrong: no reason for income to double.

37. Answer: A

A correct: aggregate demand is total planned spending at different price levels.
B wrong: labour supply is a labour-market concept.
C wrong: exports minus imports is net exports only.
D wrong: government borrowing is fiscal financing.

38. Answer: A

A correct: in a closed economy with government, AD = C + I + G.
B wrong: this is open-economy AD.
C wrong: S + T + M are withdrawals.
D wrong: W + R + P are income categories.

39. Answer: A

A correct: open economy AD = C + I + G + X – M.
B wrong: this includes withdrawals, not AD.
C wrong: this resembles factor incomes.
D wrong: GDP/population gives GDP per head.

40. Answer: A

A correct: investment is an injection, so autonomous investment increases injections.
B wrong: investment is not a withdrawal.
C wrong: investment raises aggregate demand.
D wrong: equilibrium income rises through multiplier effects.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. Answer: A

A correct: the multiplier measures the final change in national income after an initial change in injections.
B wrong: inflation is measured by price indices.
C wrong: unemployment is measured by unemployment rate.
D wrong: reserves relate to banking.

42. Answer: A

A correct: spending becomes income for others, who then spend part of it again.
B wrong: if all income is saved, the multiplier is very small.
C wrong: imports may exist and reduce the multiplier.
D wrong: taxes can reduce the multiplier, not create it alone.

43. Answer: A

A correct: simple multiplier = 1 / MPS.
B wrong: 1/MPC is not the simple multiplier.
C wrong: MPC/MPS is not the multiplier formula.
D wrong: MPS/MPC is not correct.

44. Answer: D

A wrong: 0.8 is MPC.
B wrong: 1.25 is 1/0.8.
C wrong: 4 would be if MPS = 0.25.
D correct: MPS = 1 – 0.8 = 0.2; multiplier = 1/0.2 = 5.

45. Answer: C

A wrong: 0.25 is MPS.
B wrong: 1.25 is not correct.
C correct: multiplier = 1 / 0.25 = 4.
D wrong: 5 would be if MPS = 0.2.

46. Answer: D

A wrong: $30m is 0.6 × 50, not final multiplier effect.
B wrong: $50m is only the initial injection.
C wrong: $80m is not correct.
D correct: MPS = 0.4; multiplier = 1/0.4 = 2.5; final income rise = 2.5 × $50m = $125m.

47. Answer: C

A wrong: $20m is 0.2 × 100, not multiplier effect.
B wrong: $100m is only initial spending.
C correct: multiplier = 1/0.2 = 5; final income rise = 5 × $100m = $500m.
D wrong: $1000m would require multiplier 10.

48. Answer: A

A correct: savings, taxes and imports leak income out of the spending stream, reducing the multiplier.
B wrong: exports are not always zero.
C wrong: consumers cannot spend more than income forever.
D wrong: injections do not disappear completely.

49. Answer: A

A correct: higher marginal propensity to withdraw means less respending from each income round, so the multiplier falls.
B wrong: multiplier rises when withdrawals fall.
C wrong: infinite multiplier would require no withdrawals.
D wrong: multiplier is not automatically negative.

50. Answer: A

A correct: an injection raises income; part is consumed, creating further income rounds, so final GDP rises by more than the initial injection.
B wrong: a withdrawal reduces income and tends to shrink multiplier effects.
C wrong: lower MPC means higher MPS, so multiplier falls.
D wrong: imports are withdrawals; higher imports reduce the multiplier.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.