All Free Economics MCQs with Answers
Every Economics question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
4,037 questions · page 1 of 202
1. Real GDP differs from nominal GDP because real GDP measures current production using which basis?
- A. Current prices of the same year
- B. Constant prices of a base year
- C. Market prices after tax collection
- D. Foreign prices converted into rupees
Explanation: Real GDP values goods and services at constant prices from a selected base year, so the effect of inflation is removed.
Correct answer: Constant prices of a base year- A. Foreign direct investment inflows
- B. Exports of goods and services
- C. Government borrowing from abroad
- D. Changes in official foreign reserves
Explanation: The current account records trade in goods and services, income flows and current transfers such as remittances.
Correct answer: Exports of goods and services- A. Total revenue over total expenditure
- B. Total expenditure over total revenue
- C. Exports over imports of goods
- D. Money supply over currency circulation
Explanation: A fiscal deficit occurs when total government expenditure exceeds total government revenue during a financial year.
Correct answer: Total expenditure over total revenue- A. Reduce inflationary demand pressures
- B. Increase government development spending
- C. Raise exports through cheaper credit
- D. Increase the supply of currency notes
Explanation: A higher policy rate makes borrowing more expensive and can reduce excessive demand, helping contain inflation.
Correct answer: Reduce inflationary demand pressures- A. Current account as secondary income
- B. Financial account as portfolio investment
- C. Capital account as fixed investment
- D. Reserve account as official borrowing
Explanation: Workers' remittances are current transfers and therefore appear under secondary income in the current account.
Correct answer: Current account as secondary income- A. The tax rate falls as income rises
- B. The tax rate stays fixed for every taxpayer
- C. The tax rate rises as income rises
- D. The tax is charged only on imported goods
Explanation: In a progressive tax system, higher income groups pay a larger proportion of their income in tax.
Correct answer: The tax rate rises as income rises- A. Accumulated payment arrears across the energy chain
- B. Total foreign loans used for power projects
- C. Annual losses of the central bank
- D. Unpaid taxes collected from textile firms
Explanation: Circular debt develops when payment shortfalls move through generators, distributors, fuel suppliers and other participants in the energy…
Correct answer: Accumulated payment arrears across the energy chain- A. Workers produce more than their firms require
- B. Some workers add little or no extra output
- C. All workers receive wages above market rates
- D. Unemployed people move to another province
Explanation: Disguised unemployment occurs when more workers are engaged than are needed, so removing some workers causes little or no reduction in…
Correct answer: Some workers add little or no extra output- A. Federal and provincial development projects
- B. Private banks' short-term lending
- C. Routine salaries of government employees
- D. Daily changes in the stock exchange index
Explanation: The Public Sector Development Programme, or PSDP, sets out public development projects and their expected allocations.
Correct answer: Federal and provincial development projects- A. A rising share of dependants and fewer workers
- B. A large working-age population with suitable jobs
- C. A falling labour force and higher birth rates
- D. A growing population without investment in skills
Explanation: A demographic dividend can arise when the working-age population forms a large share of the total and the economy provides productive…
Correct answer: A large working-age population with suitable jobs- A. Private consumption + investment + government spending + net exports
- B. Private consumption + saving + taxation + imports
- C. Wages + rent + interest + profits + depreciation
- D. Exports + imports + government revenue + private saving
Explanation: The expenditure approach adds consumption, investment, government spending and net exports.
Correct answer: Private consumption + investment + government spending + net exports- A. Demand pull inflation
- B. Cost push inflation
- C. Structural deflation
- D. Imported disinflation
Explanation: Cost push inflation occurs when production costs rise and firms pass those costs to consumers.
Correct answer: Cost push inflation- A. The Federal Board of Revenue
- B. The National Economic Council
- C. The Monetary Policy Committee
- D. The Council of Common Interests
Explanation: The Monetary Policy Committee of the State Bank decides monetary policy, including the policy rate.
Correct answer: The Monetary Policy Committee- A. Total income and total expenditure
- B. Exports and imports of goods and services
- C. Merchandise exports and merchandise imports
- D. Capital inflows and capital outflows
Explanation: The balance of trade traditionally measures merchandise exports minus merchandise imports.
Correct answer: Merchandise exports and merchandise imports- A. Make imports cheaper and exports more expensive
- B. Make imports more expensive and exports more competitive
- C. Reduce the rupee value of foreign debt
- D. Eliminate the country's trade deficit immediately
Explanation: A weaker rupee raises the domestic price of imported goods and can make Pakistani goods cheaper for foreign buyers.
Correct answer: Make imports more expensive and exports more competitive- A. Average income of people below the poverty line
- B. Percentage of the population living below the poverty line
- C. Total cost of removing poverty from an economy
- D. Difference between rich and poor household incomes
Explanation: The headcount ratio is the share of people whose income or consumption falls below the defined poverty line.
Correct answer: Percentage of the population living below the poverty line- A. Employed in the formal sector only
- B. Employed or actively seeking employment
- C. Receiving wages from a registered employer
- D. Working full time for at least thirty hours
Explanation: The labour force includes employed people and those actively seeking work.
Correct answer: Employed or actively seeking employment- A. The money supply rises without a change in output
- B. Employment and output gradually shift from agriculture toward industry and services
- C. The government replaces all private firms with public enterprises
- D. The exchange rate remains fixed over a long period
Explanation: Structural transformation describes the changing composition of production and employment as an economy develops.
Correct answer: Employment and output gradually shift from agriculture toward industry and services- A. Distribution of federal tax revenues between the federation and provinces
- B. Approval of the State Bank's annual monetary policy
- C. Regulation of imports through customs duties
- D. Allocation of agricultural land among provinces
Explanation: The National Finance Commission recommends the distribution of specified federal revenues between the federation and the provinces, as…
Correct answer: Distribution of federal tax revenues between the federation and provinces- A. Finance domestic salaries without taxation
- B. Meet external payment obligations and support exchange market stability
- C. Increase agricultural land without investment
- D. Replace the need for all government borrowing
Explanation: Foreign exchange reserves provide liquid external assets for paying imports, servicing external obligations and managing pressure in the…
Correct answer: Meet external payment obligations and support exchange market stability