All Free Economics MCQs with Answers

• A. none of these answers
• B. substitution bias
• C. base year bias
• D. bias due to unmeasured quality change
• E. bias due to the introduction of new goods.

Explanation: A fixed consumption basket does not fully reflect consumers switching from costlier apples to oranges, so the CPI may overstate the rise…

• A. An increase in the price of BMWs produced in Germany and sold in the Pakistan
• B. An increase in the price of Peugeots produced in the Pakistan
• C. An increase in the price of helicopters purchased by the Pak Navy.
• D. An increased in the Price of domestically produced armoured vehicles sold exclusively to Iran

Explanation: Imported BMWs bought by consumers enter Pakistan’s CPI basket, but imports are excluded from GDP and therefore from the GDP deflator.

• A. Employed
• B. Not in the labour force
• C. A discouraged worker
• D. Unemployed

Explanation: A person who stays home to provide household care is neither working for pay nor actively seeking work.

• A. Helps the economy move on the to Production Possibility Frontier
• B. Helps shift the economy's Production Possibility Frontier outwards
• C. Helps the economy move along its Production Possibility Frontier
• D. Helps the economy move inside the Production Possibility Frontier

Explanation: Reducing involuntary unemployment allows currently idle resources to be used, moving the economy from inside its production possibility…

• A. Not in the labour force
• B. Not in the adult population
• C. Unemployed
• D. Employed

Explanation: A person who wants work but has stopped searching is a discouraged worker.

• A. The natural rate of unemployment
• B. cyclical unemployment
• C. efficiency wage unemployment
• D. frictional unemployment

Explanation: The natural rate of unemployment is the normal level of unemployment when the economy is operating without cyclical unemployment.

• A. The upward accelerator
• B. The downward multiplier
• C. The upward PPF
• D. The downward mpc

Explanation: A fall in demand can reduce production and employment, lowering incomes and spending and causing a further fall in demand.

• A. ceiling, stock building
• B. ceiling, capital prices
• C. floor, output
• D. floor, the capital-output ratio

Explanation: Gross investment cannot be negative, so investment can fall only to zero rather than becoming negative.

• A. consumption expected future profits
• B. investment, interest rates
• C. investment expected future profits
• D. stock building interest rates

Explanation: In the multiplier-accelerator model, investment responds to expected future profitability, while changes in consumption and income…

• A. boom
• B. slump
• C. recovery
• D. acceleration

Explanation: The usual business-cycle phases are boom, slump or recession, trough, and recovery.

• A. trend path of output
• B. boom
• C. recession
• D. short-run fluctuations in output

Explanation: Business cycles are temporary expansions and contractions in economic activity around the economy's long-term trend path of output.

• A. saving, investment
• B. capital per person, productivity
• C. labor growth, output
• D. investment capital per person

Explanation: In the neoclassical growth model, steady-state investment is just enough to equip the growing labour force while keeping capital per…

• A. the value of leisure
• B. Externalities
• C. Untraded goods
• D. Change in the distribution of income
• E. All of the above

Explanation: GDP per head records market production but omits or poorly reflects leisure, external costs and benefits, non-market or untraded goods…

• A. Imposing higher taxes on capital
• B. encouraging more labour intensive work to reduce unemployment
• C. reducing spending in education
• D. encouraging private investment

Explanation: Private investment can raise productivity by increasing the capital available per worker and encouraging improved technology and…

• A. total exploitation
• B. labour/capital productivity
• C. total factor productivity
• D. total productivity

Explanation: Total factor productivity measures the efficiency with which the combined inputs of labour and capital produce output.

• A. endogenous
• B. exogenous
• C. beta
• D. convergence

Explanation: Endogenous growth theory explains long-run growth through factors within the economic system, such as technology, education, institutions…

• A. Steady state growth path
• B. Steady state invention rate
• C. Steady state level of output
• D. Unsteady state growth path

Explanation: A steady-state growth path is the path of output and capital generated by a given saving rate alongside technological progress, with key…

• A. economic growth is Zero
• B. All investment is used in the manufacturing sector
• C. Economic growth is growing
• D. All investment is used to maintain the existing capital stock at its current level

Explanation: In a steady-state or long-run equilibrium, gross investment is just sufficient to replace depreciation and maintain the existing capital…

• A. increase government spending
• B. reduce taxation
• C. save more
• D. increase personal consumption

Explanation: Higher saving increases the funds available for investment in capital, which expands productive capacity and supports economic growth.

• A. All countries will eventually join the EEC
• B. Poorer countries have higher capital/labour ratios than richer countries.
• C. The gap between countries GDP per head will widen
• D. Poorer less developed countries will catch up with richer ones.

Explanation: GDP convergence means poorer economies grow faster and gradually catch up with richer economies in GDP per person.