All Free Economics MCQs with Answers

• A. Horizontal at the current price
• B. Vertical at potential output
• C. Downward sloping from output
• D. Upward sloping from consumption

Explanation: Long-run aggregate supply is vertical at potential output because real output is determined by resources, technology and institutions…

• A. Only caused by recessions
• B. Only caused by seasonal work
• C. Frictional and structural
• D. Created by excess demand

Explanation: The natural rate consists mainly of frictional and structural unemployment that exists even when the economy operates near potential…

• A. Medium of exchange
• B. Unit of account
• C. Store of value
• D. Standard of deferred payment

Explanation: As a unit of account, money provides a common measure in which prices and economic values are expressed.

• A. Provides emergency funds to solvent banks
• B. Collects income tax from households
• C. Sets prices for consumer goods
• D. Finances every private investment

Explanation: A lender of last resort supplies emergency liquidity to banks facing temporary funding problems, helping to prevent a wider banking panic.

• A. Above the economy's potential output
• B. Equal to the economy's potential output
• C. Below the economy's potential output
• D. Unrelated to the economy's potential output

Explanation: A recessionary gap occurs when actual real GDP falls below potential GDP, leaving productive resources underused.

• A. 4 percent
• B. 5 percent
• C. 6 percent
• D. 10 percent

Explanation: The inflation rate is calculated as (126 minus 120) divided by 120, multiplied by 100, which equals 5 percent.

• A. A 10 percent fall in prices
• B. A 10 percent rise in prices
• C. No change in the price level
• D. A 20 percent rise in real output

Explanation: The quantity equation is MV equals PY. With velocity and real output unchanged, a 10 percent increase in M is matched by approximately a…

• A. High inflation with high unemployment
• B. Low inflation with rapid expansion
• C. Falling prices with rising employment
• D. Stable prices with balanced growth

Explanation: Stagflation combines persistent inflation with weak economic activity and high unemployment.

• A. A downturn in overall economic activity
• B. A mismatch between skills and vacancies
• C. The normal process of changing jobs
• D. Seasonal changes in labour demand

Explanation: Cyclical unemployment rises when aggregate demand and production fall during an economic downturn.

• A. Nominal GDP per capita
• B. Real GDP per capita
• C. Total money supply
• D. The consumer price index

Explanation: Real GDP per capita adjusts output for price changes and population size, making it more useful for comparing average production across…

• A. Exports of manufactured goods
• B. Workers' remittances received
• C. Purchase of foreign shares by residents
• D. Payments for imported fuel

Explanation: The financial account records transactions involving financial assets and liabilities, such as residents purchasing foreign shares.

• A. Reduce aggregate demandary pressure
• B. Increase public borrowing permanently
• C. Raise aggregate demand during recession
• D. Increase exports through currency sales

Explanation: Contractionary fiscal policy reduces aggregate demand, commonly through lower government spending or higher taxes, to limit excessive…

• A. Increase bank reserves and lending
• B. Reduce bank reserves and lending capacity
• C. Lower taxes and raise disposable income
• D. Increase exports through currency depreciation

Explanation: An open market sale withdraws money from the banking system, reducing commercial-bank reserves and their capacity to create deposits.

• A. Only when interest rates are falling
• B. Even when disposable income is zero
• C. Only when government transfers increase
• D. After planned investment becomes positive

Explanation: Autonomous consumption does not depend on current disposable income and may be financed through savings, borrowing, or existing assets.

• A. A temporary rise in inventory spending
• B. A sustained increase in productive capacity
• C. A one-time increase in the price level
• D. A short-term fall in unemployment

Explanation: Long-run growth requires an expansion of productive capacity through factors such as capital formation, labour skills, technology, and…

• A. The demand curve shifts to the right
• B. The demand curve shifts to the left
• C. There is a movement upward along the demand curve
• D. There is a movement downward along the demand curve

Explanation: A change in the product's own price causes a movement along the existing demand curve.

• A. 0.5
• B. 0.8
• C. 1.2
• D. 2.0

Explanation: The percentage change in quantity is 20 divided by 90, while the percentage change in price is 2 divided by 11.

• A. The ratio of total utilities
• B. The ratio of the goods' prices
• C. The ratio of total incomes
• D. The ratio of average costs

Explanation: Consumer equilibrium requires the marginal rate of substitution to equal the price ratio, such as Px divided by Py.

• A. Total output immediately begins to fall
• B. Additional workers eventually add less output
• C. Average product remains constant at every level
• D. Fixed cost rises with every additional worker

Explanation: With capital fixed, successive workers eventually contribute smaller additions to total output.

• A. Rs. 5 per unit
• B. Rs. 15 per unit
• C. Rs. 20 per unit
• D. Rs. 25 per unit

Explanation: Total cost is Rs. 400, found by adding fixed cost and variable cost. Dividing Rs. 400 by 20 units gives an average total cost of Rs.