All Free Economics MCQs with Answers

• A. imperfect labor markets
• B. rational expectations
• C. intertertemporal decisions of households, firms and government
• D. sun spot cycles

Explanation: Real business cycle theory links output fluctuations to real factors and the intertemporal decisions of households, firms, and…

• A. private sector imports and exports
• B. economic policy
• C. the duration of compulsory education
• D. labor supply changes

Explanation: Changes in the duration of compulsory education are not a normal international transmission channel for business cycles.

• A. potential output
• B. actual output
• C. real output
• D. international trade

Explanation: Real business cycle theory attributes fluctuations to real shocks that change productive capacity, so cycles are viewed as movements in…

• A. aggregate supply is
• B. aggregate demand is
• C. potential output is
• D. real variables are

Explanation: RBC theory explains short-term fluctuations mainly through real supply-side shocks and therefore gives aggregate demand little importance.

• A. sun spot theory
• B. multiplier accelerator model
• C. Solow theory
• D. New classical theory

Explanation: The multiplier-accelerator model combines the consumption multiplier with investment responses to changes in output, producing cyclical…

• A. capital-widening technical innovation
• B. capital-widening Catch-up in technology
• C. capital-deepening technical innovation
• D. capital-deepening, catch-up in technology

Explanation: Capital deepening is easier when capital per worker is low because the initial returns to added capital are relatively high.

• A. Population size, x-efficiency
• B. Population age distribution, education
• C. Population growth technical progress
• D. Population growth education

Explanation: Long-run growth depends on increases in the labour force through population growth and on technical progress that raises productivity.

• A. a higher growth rates
• B. a fluctuating growth rate
• C. a fluctuating growth rates
• D. no change in the growth rate

Explanation: In the neoclassical growth model, a higher saving rate raises the steady-state level of output per worker and causes temporary…

• A. increasing the use of labor increasing the use of land
• B. increasing the use of capital increasing the use of labour
• C. increasing the use of land increasing the use of capital
• D. increasing the use of all inputs, technical advances

Explanation: Production can rise through greater use of all factor inputs, such as labour, land and capital, or through technological progress that…

• A. Public investment in education
• B. Innovation and the application of new technology
• C. The phase of the lunar cycle
• D. Private investment in new physical caital

Explanation: Education, innovation, technology and investment in physical capital can all raise productivity.

• A. building more retail outlets
• B. encouraging risk-taking
• C. encouraging innovation
• D. encouraging R & D

Explanation: Productivity policies focus on skills, innovation, research and development, investment and incentives for risk-taking.

• A. workers
• B. non-slackers
• C. diligent rate
• D. participation rate

Explanation: The labour-force participation rate is the percentage of the working-age population that is economically active, including both employed…

• A. gets the highest rate of interest
• B. maximizes the level of long-run investment
• C. maximizes the level of long-run consumption
• D. maximizes human capital

Explanation: In the Solow growth model, the golden-rule saving rate produces the highest sustainable level of consumption per worker in the long run.

• A. An increase in the quantity of labor and capital
• B. An increase in labor productivity
• C. An increase in the money supply
• D. An increase in technology

Explanation: Long-run growth is driven by more labour and capital, higher productivity and technological progress.

• A. People want less crime
• B. People want to be happier
• C. People want a better environment
• D. People want higher incomes and more consumer goods.

Explanation: Economic growth raises productive capacity, allowing higher real incomes and greater availability of goods and services.

• A. a nominal exchange rate, floated
• B. a real exchange rate, pegged
• C. a purchasing power parity, pegged
• D. a real exchange rate, floated

Explanation: Under the Exchange Rate Mechanism, participating currencies were kept at agreed nominal rates against one another.

• A. appreciate
• B. depreciate
• C. revalue
• D. be in short supply

Explanation: Higher domestic inflation makes the country’s goods relatively expensive, reducing demand for its currency and increasing demand for…

• A. depreciation
• B. appreciation
• C. fall
• D. devaluation

Explanation: Expectations of higher interest rates attract foreign capital because investors seek higher returns on assets denominated in that…

• A. enhances
• B. undermines
• C. encourages
• D. facilitates

Explanation: With perfect capital mobility, attempts to use monetary policy alter interest rates and trigger large capital flows that put pressure on…

• A. increased
• B. unaffected
• C. reduced
• D. None of these

Explanation: When the central bank buys domestic currency, it pays for that purchase with foreign reserves and removes domestic currency from…