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 198 of 202
- A. Do not involve market transactions with measured prices
- B. Always use imported inputs
- C. Reduce the country's capital stock
- D. Are counted as government consumption
Explanation: GDP records market production or production assigned a measurable market value.
Correct answer: Do not involve market transactions with measured prices- A. The level of the money supply
- B. The rate of change in aggregate output
- C. The stock of foreign exchange reserves
- D. The average level of consumer prices
Explanation: The accelerator principle links investment to changes in output or demand rather than merely to the existing level of output.
Correct answer: The rate of change in aggregate output- A. Leftward because costs rise
- B. Rightward because productive capacity increases
- C. Leftward because consumption falls
- D. Rightward only if the price level increases
Explanation: Better technology allows an economy to produce more output from its available resources.
Correct answer: Rightward because productive capacity increases- A. A deficit caused only by a temporary recession
- B. A deficit that remains even when the economy produces at potential output
- C. A deficit caused by emergency spending after a natural disaster
- D. A deficit that disappears when unemployment benefits rise
Explanation: A structural deficit exists because government revenues and planned expenditures are mismatched even at normal or potential output.
Correct answer: A deficit that remains even when the economy produces at potential output3945. An economy's marginal propensity to save is 0.25. In the simple model, its expenditure multiplier is
- A. 1.25
- B. 2
- C. 4
- D. 5
Explanation: The simple expenditure multiplier equals 1 divided by the marginal propensity to save. Therefore, 1 divided by 0.25 equals 4.
Correct answer: 4- A. Appreciation
- B. Depreciation
- C. Devaluation
- D. Revaluation
Explanation: Devaluation is an official reduction in the value of a currency maintained under a fixed or managed exchange rate.
Correct answer: Devaluation- A. It excludes the value of all manufactured goods
- B. It ignores the distribution of income among households
- C. It counts exports as reductions in national output
- D. It includes only goods sold in international markets
Explanation: GDP measures the value of production, but it does not show how income is distributed among people.
Correct answer: It ignores the distribution of income among households3948. In the simple macroeconomic model, disposable income is the income that households can use for
- A. Consumption and saving after personal taxes
- B. Imports and exports before government taxes
- C. Government purchases and private investment
- D. Wages and profits before production costs
Explanation: Disposable income is personal income remaining after direct personal taxes and transfer adjustments.
Correct answer: Consumption and saving after personal taxes- A. It reduces borrowing and lowers consumption
- B. It raises borrowing and may increase investment
- C. It increases saving and reduces planned spending
- D. It lowers asset prices and decreases household wealth
Explanation: A lower policy rate tends to reduce market borrowing costs, encouraging interest-sensitive consumption and investment.
Correct answer: It raises borrowing and may increase investment- A. Feel poorer and reduce some consumption spending
- B. Feel richer and increase planned tax payments
- C. Face lower export prices and increase foreign demand
- D. Receive higher real wages and reduce labour supply
Explanation: A higher price level reduces the purchasing power of money balances held by households.
Correct answer: Feel poorer and reduce some consumption spending- A. A fall in the price of imported raw materials
- B. An increase in expected future inflation
- C. A reduction in personal income tax rates
- D. An increase in household financial wealth
Explanation: Higher expected inflation can lead workers and firms to seek higher wages and prices, raising production costs in the short run.
Correct answer: An increase in expected future inflation- A. A trade surplus
- B. A fiscal surplus
- C. A capital account deficit
- D. A primary income deficit
Explanation: A trade surplus occurs when the value of exports of goods and services is greater than the value of imports.
Correct answer: A trade surplus- A. Export prices rise relative to import prices
- B. Import prices rise relative to export prices
- C. The domestic money supply falls without trade changes
- D. Domestic unemployment rises while trade prices remain fixed
Explanation: Terms of trade compare export prices with import prices. When export prices rise relative to import prices, the country can obtain more…
Correct answer: Export prices rise relative to import prices- A. A rise in unemployment benefits during a downturn
- B. A government decision to fund a new motorway project
- C. A fall in tax revenue caused by lower household incomes
- D. A reduction in welfare payments caused by fewer claims
Explanation: Discretionary fiscal policy involves a deliberate change in government spending or taxation.
Correct answer: A government decision to fund a new motorway project- A. An export of goods in the current account
- B. A portfolio investment inflow in the financial account
- C. A transfer payment in the secondary income account
- D. A reduction in official reserve assets in the financial account
Explanation: The purchase of domestic shares by a foreign investor is a financial asset transaction and is recorded as portfolio investment in the…
Correct answer: A portfolio investment inflow in the financial account- A. A temporary increase in consumer borrowing
- B. A sustained increase in the economy's capital stock
- C. A one-time rise in government purchases
- D. A short-lived increase in the general price level
Explanation: A larger capital stock increases the economy's productive capacity and can raise potential output over time.
Correct answer: A sustained increase in the economy's capital stock- A. a fall in aggregate income that may reduce total saving
- B. a rise in consumption that increases total income
- C. a rise in imports that improves domestic employment
- D. a fall in investment caused by higher exports
Explanation: If all households attempt to save more, consumption falls and aggregate demand decreases.
Correct answer: a fall in aggregate income that may reduce total saving- A. reduce the lending capacity of commercial banks
- B. increase the money multiplier through larger loans
- C. lower the amount of reserves held by commercial banks
- D. increase aggregate demand through cheaper credit
Explanation: A higher reserve ratio requires banks to retain a larger share of deposits and leaves less available for lending.
Correct answer: reduce the lending capacity of commercial banks- A. is outside the labour force because the person stopped seeking work
- B. is unemployed because the person is actively seeking a job
- C. is employed part time because the person wants full-time work
- D. is included in the labour force because the person receives benefits
Explanation: A discouraged worker is available for work but has stopped actively looking because of poor job prospects.
Correct answer: is outside the labour force because the person stopped seeking work- A. 3 percent
- B. 4 percent
- C. 7 percent
- D. 11 percent
Explanation: Real GDP growth is approximately nominal GDP growth minus the increase in the general price level.
Correct answer: 3 percent