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 46 of 202
- A. horizontal, natural rate of inflation
- B. horizontal natural rate of unemployment
- C. vertical natural rate of inflation
- D. vertical equilibrium rate of unemployment
Explanation: In the long run, unemployment returns to its natural or equilibrium rate regardless of the inflation rate, so the Phillips curve is…
Correct answer: vertical equilibrium rate of unemployment- A. numbers of employees
- B. welfare plans
- C. budget deficits
- D. expenditures
Explanation: A large budget deficit can raise aggregate demand when government spending exceeds revenue, creating demand-pull inflationary pressure…
Correct answer: budget deficits- A. fall
- B. increase
- C. remain the same
- D. fluctuates
Explanation: A rise in oil prices is an adverse supply shock, but accepting lower real interest rates is an expansionary monetary response that…
Correct answer: increase- A. long run, short run
- B. flexible imperfect markets
- C. short-term long run
- D. long run, imperfect markets
Explanation: Keynesian analysis emphasizes short-run fluctuations when wages and prices may be rigid, while the classical model is mainly a long-run…
Correct answer: short-term long run- A. demand, supply
- B. IS, LM
- C. AD, AS
- D. Labor demand, labor supply
Explanation: The equilibrium price level and inflationary outcome are found where aggregate demand intersects aggregate supply.
Correct answer: AD, AS- A. inflation
- B. a supply shock
- C. crowding out
- D. inflation illusion
Explanation: A 10% wage increase matched by a 10% rise in prices leaves real purchasing power unchanged, but the person feels better off because of a…
Correct answer: inflation illusion- A. wages and prices are sticky
- B. wages and prices are flexible
- C. the economy may operate below full capacity
- D. the economy is always at full capacity
- E. A and C
- F. B and D
Explanation: The classical model assumes flexible wages and prices, allowing markets to clear and the economy to operate at full employment or…
Correct answer: B and D- A. minimize negotiation costs
- B. minimize unemployment effects
- C. guarantee that only the least productive workers will be laid off.
- D. will equitable spread the layoffs among junior and senior workers
Explanation: Although fixed contracts can cause layoffs when demand falls, they reduce the repeated bargaining and renegotiation required between…
Correct answer: minimize negotiation costs- A. New classical economists
- B. Keynesian.
- C. Monetarists
- D. Marxists.
Explanation: Monetarists, especially Milton Friedman, added expected inflation to the Phillips-curve analysis and argued that the…
Correct answer: Monetarists- A. lower unemployment rate will tend to lower the inflation rate
- B. lower unemployment rate will tend to raise the inflation rate
- C. raise inflation rate will tend to raise the unemployment rate
- D. lower inflation rate will tend to raise the unemployment rate
Explanation: The original short-run Phillips curve was interpreted as an inverse relationship: expansionary policies could reduce unemployment but…
Correct answer: lower unemployment rate will tend to raise the inflation rate- A. the price level and the unemployment rate
- B. the inflation rate and the unemployment rate
- C. the level of aggregate output and the price level
- D. the inflation rate and the level of aggregate demand
Explanation: The Phillips curve plots inflation, usually the rate of change in prices, against unemployment.
Correct answer: the inflation rate and the unemployment rate- A. New classical economists
- B. Keynesian.
- C. Marxists
- D. Monetarists
Explanation: Keynesian analysis recognizes cost-push inflation, in which rising wages, raw-material prices, or other production costs push firms to…
Correct answer: Keynesian.- A. only in the short run, and not without inflation
- B. only in the long run and not without inflation
- C. only is the short run and only if the price level is constant
- D. only in the long run and only if the price level is constant
Explanation: Unemployment can fall below its natural rate temporarily when unexpected inflation reduces real wages and increases employment, but…
Correct answer: only in the short run, and not without inflation- A. frictional unemployment and seasonal unemployment
- B. frictional unemployment and cyclical unemployment
- C. frictional unemployment and structural unemployment
- D. cyclical unemployment and structural unemployment
Explanation: The natural rate includes unemployment that remains even when the economy is operating normally: frictional unemployment from job search…
Correct answer: frictional unemployment and structural unemployment- A. neither monetary nor fiscal policy will have an effect on output and employment
- B. monetary but not fiscal policy will have an effect on output and employment
- C. Fiscal, but not monetary policy will have an effect on output and employment
- D. both monetary and fiscal policy will have an effect on output and employment
Explanation: In the classical model, flexible wages and prices restore full employment, so changes in monetary or fiscal policy mainly affect prices…
Correct answer: neither monetary nor fiscal policy will have an effect on output and employment- A. quickly
- B. slowly
- C. very infrequently
- D. instantly
Explanation: The classical view assumes wages are flexible, so wage adjustments occur quickly enough to eliminate excess demand or supply in the labour…
Correct answer: quickly- A. None of these answers
- B. Disagree because they have different scientific judgments
- C. really don't disagree at all. It just appears that they disagree
- D. disagree because they have different values
Explanation: Their claims concern the size and duration of the effect of government spending, which are matters of empirical economic analysis.
Correct answer: Disagree because they have different scientific judgments- A. Large government deficits cause an economy to grow more slowly
- B. People work harder if the wage is higher
- C. The unemployment rate should be lower
- D. Printing too much money causes inflation
Explanation: The word “should” makes the statement a value-based recommendation rather than a testable description.
Correct answer: The unemployment rate should be lower- A. really don't disagree at all It just appears that they disagree.
- B. disagree because they have different values.
- C. none of these answers.
- D. disagree because they have different scientific judgments.Science
Explanation: The economists are ranking social problems according to different beliefs about what matters most.
Correct answer: disagree because they have different values.- A. decreasing autonomy of the nation-state involves
- B. the increasing international integration of markets for goods services and capital
- C. changes of a traditional culture of a country to a western culture
- D. giving aid to poor countries to improve their economy politics and social status
Explanation: Rodrik uses globalization to mean the growing integration of national markets, especially for goods, services, and capital.
Correct answer: the increasing international integration of markets for goods services and capital