All Free Economics MCQs with Answers

• A. government programs direct resources away from investment goods to consumer goods.
• B. tariffs and quotas prevent countries from trading and thus prevent dollars from leaving each country
• C. the rate of growth in real GNP is greater than the rate of growth in the population
• D. the level of consumption expenditures rises relative to the level of savings

Explanation: Real GNP per capita increases when real GNP grows faster than the population, because the total output is then being divided among…

• A. a temperate climate
• B. natural resources
• C. an adequate capital bases
• D. technological advance

Explanation: A temperate climate may help some economies but is not a necessary condition for development, as shown by successful economies in tropical…

• A. approximated investment minus actual investment
• B. inflow of investment from abroad
• C. sum of previous gross investment minus depreciation
• D. difference between GDP and capital consumption

Explanation: Capital stock is accumulated gross investment less the depreciation of existing capital, giving the economy's net stock of productive…

• A. convex
• B. inverted U shaped
• C. L-shaped
• D. S-Shaped

Explanation: The Kuznets hypothesis proposes that inequality first rises during early development and later falls as an economy becomes more advanced…

• A. increase expenditure on public education
• B. eliminate civil war
• C. All of these answers would increase growth
• D. increase restrictions on the importing of American tractors and electronics

Explanation: Restricting imports of tractors and electronics reduces access to capital goods and technology, making production less efficient and…

• A. how hard we work:
• B. our supply of capital because everything of value is produced by machinery
• C. our productivity because our income is equal to what we produce
• D. our supply of natural resources because they limit production

Explanation: Standards of living depend most directly on productivity, because higher output per worker supports higher incomes and consumption.

• A. Productivity growth has been steady over the last 50 years
• B. Productivity has been growing more slowly every decade since world War II
• C. Productivity grew quickly in the 1950s and 1960s more slowly from the early 1970s through 1995 and then quickly again
• D. Productivity grew slowly from the 1950s through the 1970s and then began to accelerate probably due to advances in computer technology

Explanation: US productivity rose rapidly in the 1950s and 1960s, slowed from the early 1970s to the mid-1990s, and accelerated again during the…

• A. There is no evidence, yet that rapid population growth stretches natural resources to the point that it limits growth in productivity
• B. All of these answers
• C. Rapid population growth may dilute the capital stock lowering productivity
• D. Rapid population growth may promote technological progress increasing productivity.

Explanation: Rapid population growth can dilute capital per worker, while it may also encourage innovation and put pressure on resources.

• A. doubling all of the inputs more than doubles output due to the catch-up effect
• B. doubling all of the inputs has absolutely no impact on output because output is constant
• C. doubling all of the inputs less than doubles output due to diminishing returns
• D. doubling all of the input's doubles output

Explanation: Constant returns to scale means output changes in the same proportion as all inputs.

• A. labor
• B. physical capital/worker
• C. human capital/worker
• D. natural resources/worker

Explanation: With technology fixed, adding labor alone does not necessarily raise productivity, which is output per worker.

• A. it no longer needs any human capital
• B. capital becomes more productive due to the "catch-up- effect"
• C. none of these answers
• D. it may be harder for it to grow quickly because of the diminishing returns to capital

Explanation: As a country accumulates capital, diminishing returns mean that each additional unit of capital produces a smaller gain in output.

• A. They save and invest an unusually high percentage of their GDP
• B. They have always been wealthy and will continue to be wealthy, which is known as the "snowball effect"
• C. They are imperialists and have collected wealth from previous victories in war
• D. They have enormous natural resources.

Explanation: Many East Asian economies achieved rapid growth by maintaining high saving and investment rates, which expanded their capital stock and…

• A. encourage foreigners to investment in your country
• B. encourage saving and investment
• C. nationalize major industries
• D. encourage research and development
• E. Promote free trade

Explanation: Nationalizing major industries can weaken competition, incentives and efficiency, so it is not generally a recommended growth policy.

• A. Megabank buys a new computer
• B. Naila pays her university tuition fees.
• C. OGDC leases a new oil field
• D. Indus Motors buys a new drill press

Explanation: Education creates benefits beyond the student, such as a more skilled workforce and knowledge spillovers, so tuition-funded education can…

• A. None of these answers
• B. There has been an increase in foreign portfolio investment in the UK
• C. Once the plant starts producing cars UK GDP will rise less than UK GNP
• D. once the plant starts producing cars UK GDP will rise more than UK GNP

Explanation: A Toyota plant in England adds to UK production, so UK GDP rises. The profits belong to a Japanese-owned company and are not counted as UK…

• A. Toyota builds a new plant in the north of England
• B. EDF of France buys shares in Scottish & Southern Energy of the UK, and Scottish & Southern Energy uses the Proceeds to build a new hydro-electric power station in Scotland
• C. Deutsche Bank of Germany buys some new software from UK Supplier
• D. JCB builds a new plant near Manchester

Explanation: Foreign portfolio investment is the purchase of foreign shares or securities without directly establishing or controlling a business.

• A. A farmer sends his child to agricultural college and the child returns to work on the farm
• B. A farmer hires another day laborer
• C. A farmer buys another tractor
• D. A farmer discovers that it is better to plant in the spring rather than in the fall

Explanation: Technological knowledge means learning a better method of production, not merely adding labour or capital.

• A. none of these answers
• B. an ever-increasing population is constrained only by the food supply resulting in chronic faminies
• C. technological progress will continuously generate improvement in productivity and living standards.
• D. labor is the only true factor of production

Explanation: Malthus argued that population tends to grow faster than the food supply, so limited food eventually produces checks such as famine.

• A. a renewable natural resource
• B. physical capital
• C. technology
• D. a non-renewable natural resource

Explanation: Copper exists in finite underground deposits and cannot be replenished on a human time scale.

• A. a reduction in current investment
• B. a reduction in current consumption
• C. a reduction in taxes
• D. a reduction in current saving

Explanation: Economic growth requires current resources to be devoted to investment rather than present consumption.