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 197 of 202
- A. Higher tariffs and lower subsidies
- B. Progressive taxes and unemployment benefits
- C. Fixed exchange rates and export quotas
- D. Public debt and foreign reserves
Explanation: Progressive taxes collect relatively more revenue during expansions, while unemployment benefits support incomes during downturns.
Correct answer: Progressive taxes and unemployment benefits- A. 4 percent
- B. 8 percent
- C. 12 percent
- D. 20 percent
Explanation: The approximate real interest rate is calculated by subtracting inflation from the nominal interest rate.
Correct answer: 4 percent- A. Increase the number of farm workers
- B. Use large-scale machinery efficiently
- C. Raise the price of imported fertilizer
- D. Expand the rural population quickly
Explanation: Very small and scattered holdings reduce the efficient use of tractors, harvesters and other large machinery.
Correct answer: Use large-scale machinery efficiently- A. Record annual tax collections
- B. Present a development project for appraisal
- C. Set the central bank policy rate
- D. Report a company's export earnings
Explanation: PC-I is the standard project document used to present the objectives, costs, benefits and implementation details of a development project.
Correct answer: Present a development project for appraisal- A. Wider access to bank accounts and digital payments
- B. Higher duties on imported consumer goods
- C. A larger gap between urban and rural wages
- D. Lower production of formal financial records
Explanation: Financial inclusion means that households and businesses can access and use affordable formal financial services.
Correct answer: Wider access to bank accounts and digital payments- A. A fixed price for all exports
- B. Domestic price stability
- C. A balanced government budget
- D. A constant level of foreign investment
Explanation: The State Bank's primary objective is domestic price stability, while financial stability and support for economic policies are related…
Correct answer: Domestic price stability- A. Net national product at factor cost
- B. Gross domestic product at market prices
- C. Net domestic product at market prices
- D. Gross national product at factor cost
Explanation: National income is conventionally defined as net national product at factor cost.
Correct answer: Net national product at factor cost- A. To avoid counting the same output more than once
- B. To include household transfers in national output
- C. To convert nominal production into real production
- D. To measure only goods sold in foreign markets
Explanation: Value added at each production stage prevents intermediate goods from being counted repeatedly.
Correct answer: To avoid counting the same output more than once3929. If 8 million people are unemployed and the labour force is 80 million, the unemployment rate is
- A. 8 percent
- B. 10 percent
- C. 12 percent
- D. 20 percent
Explanation: The unemployment rate equals unemployed people divided by the labour force, multiplied by 100.
Correct answer: 10 percent- A. A movement down the aggregate demand curve
- B. A rightward shift of aggregate demand
- C. A leftward shift of short-run aggregate supply
- D. A movement up the aggregate supply curve
Explanation: Greater consumer confidence usually raises planned consumption at each price level.
Correct answer: A rightward shift of aggregate demand- A. Lower prices and higher real output
- B. Higher prices and lower real output
- C. Higher prices and higher real output
- D. Lower prices and lower real output
Explanation: Imported petroleum is an important production input, so its higher price raises firms' costs.
Correct answer: Higher prices and lower real output3932. If a country's currency appreciates, other factors remaining constant, which outcome is most likely?
- A. Exports become cheaper and imports become dearer
- B. Exports become dearer and imports become cheaper
- C. Both exports and imports become cheaper
- D. Both exports and imports become dearer
Explanation: An appreciation increases the foreign-currency price of the country's exports and reduces the domestic-currency price of imports.
Correct answer: Exports become dearer and imports become cheaper3933. The labour force participation rate measures the proportion of the working-age population that
- A. Has a job at the prevailing wage
- B. Is either employed or actively seeking work
- C. Is unemployed and receiving benefits
- D. Works in the formal sector only
Explanation: The labour force consists of employed people and unemployed people who are actively seeking work.
Correct answer: Is either employed or actively seeking work- A. Prevent its currency from depreciating below the fixed rate
- B. Prevent its currency from appreciating above the fixed rate
- C. Increase imports through cheaper foreign currency
- D. Reduce the domestic value of foreign reserves
Explanation: Selling foreign currency and buying domestic currency increases demand for the domestic currency.
Correct answer: Prevent its currency from depreciating below the fixed rate3935. The Fisher effect suggests that, in the long run, a higher expected inflation rate tends to produce
- A. A lower nominal interest rate
- B. A higher nominal interest rate
- C. A lower real output growth rate only
- D. A fall in the money demand for transactions
Explanation: The Fisher relationship states that the nominal interest rate is approximately the real interest rate plus expected inflation.
Correct answer: A higher nominal interest rate3936. When actual output exceeds an economy's sustainable potential output, the economy is said to have
- A. A deflationary gap
- B. An inflationary gap
- C. A balance of payments gap
- D. A structural unemployment gap
Explanation: An inflationary gap exists when actual output is above potential output at normal resource utilisation.
Correct answer: An inflationary gap- A. The general price level
- B. Consumer expectations
- C. Government purchases
- D. The money supply
Explanation: A change in the general price level changes the quantity of real output demanded and produces movement along the existing aggregate demand…
Correct answer: The general price level- A. 3 percent
- B. 5 percent
- C. 8 percent
- D. 11 percent
Explanation: The approximate expected real interest rate equals the nominal interest rate minus expected inflation.
Correct answer: 5 percent- A. Banks are legally unable to create deposits
- B. People are willing to hold additional money at a very low interest rate
- C. The government automatically raises taxes during a recession
- D. Exports fall whenever the money supply increases
Explanation: In a liquidity trap, interest rates are very low and people prefer holding liquid money rather than bonds.
Correct answer: People are willing to hold additional money at a very low interest rate- A. The tax multiplier is larger than the spending multiplier
- B. The direct spending effect exceeds the negative consumption effect
- C. Taxes have no effect on household income
- D. Government spending is excluded from aggregate demand
Explanation: An equal rise in spending and taxes raises aggregate demand by the balanced-budget multiplier, which is one in the simple Keynesian model.
Correct answer: The direct spending effect exceeds the negative consumption effect