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 64 of 202
- A. ratio of the frictional unemployment rate to the cyclical unemployment rate.
- B. Sum of structural unemployment and cyclical unemployment.
- C. Sum of frictional unemployment and cyclical unemployment
- D. sum of frictional unemployment and structural unemployment.
Explanation: The natural rate of unemployment consists of frictional unemployment, caused by job search, and structural unemployment, caused by…
Correct answer: sum of frictional unemployment and structural unemployment.- A. regional
- B. technological
- C. structural
- D. demand-deficient
Explanation: Structural unemployment occurs when changes in demand or supply make workers’ skills, industries or locations mismatched with available…
Correct answer: structural- A. natural
- B. frictional
- C. disequilibrium
- D. structural
Explanation: When real wages remain above the equilibrium level, the quantity of labour supplied exceeds the quantity demanded, producing…
Correct answer: disequilibrium- A. the household and government sectors
- B. the household sector.
- C. all sectors of except the rest of the world
- D. all sectors of the economy including the rest of the world.
Explanation: Aggregate demand is planned expenditure by households, firms, government and the foreign sector, represented by C + I + G + (X − M).
Correct answer: all sectors of the economy including the rest of the world.- A. not change the unemployment rate
- B. decrease the unemployment rate
- C. increase the unemployment rate
- D. have an indeterminate impact on the unemployment rate
Explanation: Discouraged workers are normally outside the labour force, so counting them as unemployed adds them to both unemployment and the labour…
Correct answer: increase the unemployment rate- A. a labour force survey.
- B. the number out of work and claiming benefit
- C. the percentage of the labour force not in work
- D. the ILO/OECD standardised unemployment measurement
Explanation: The ILO standard measures unemployment through labour-force surveys using internationally comparable criteria, rather than relying only on…
Correct answer: the ILO/OECD standardised unemployment measurement- A. Unemployment population ratio.
- B. Unemployment rate
- C. employment rate
- D. Labour force rate.
Explanation: The unemployment rate is calculated as unemployed people divided by the labour force, expressed as a percentage.
Correct answer: Unemployment rate- A. The aggregate supply curve shifts to the right by more than Rs 16 billion
- B. The aggregate demand curve shifts to the left by more than Rs 16 billion
- C. The aggregate demand curve shifts to the right by more than Rs 16 billion
- D. the aggregate supply curve shifts to the left by more than Rs 16 billion
Explanation: The initial increase in government purchases raises aggregate demand, and the multiplier expands the effect beyond Rs16 billion.
Correct answer: The aggregate demand curve shifts to the right by more than Rs 16 billion- A. supply-side economics
- B. None of these answers
- C. The crowding-out effect
- D. The multiplier effects
Explanation: Higher government purchases raise income and money demand, pushing up interest rates and reducing private investment.
Correct answer: The crowding-out effect- A. raises the value of the multiplier
- B. has no impact on the value of the multiplier?
- C. rarely occurs because the MPC is set by congressional legislation
- D. lowers the value of the multiplier
Explanation: The simple spending multiplier is 1 divided by 1 minus the MPC, so a higher MPC produces a larger multiplier.
Correct answer: raises the value of the multiplier- A. aggregate demand to the right
- B. aggregate demand to the left
- C. aggregate supply to the right
- D. aggregate supply to the left
Explanation: Government spending is a component of aggregate demand, so its immediate effect is to increase aggregate demand and shift its curve to the…
Correct answer: aggregate demand to the right- A. The wealth effect
- B. None of these answers
- C. The exchange-rate effect
- D. The fiscal effect
- E. The interest-rate effect
Explanation: The interest-rate effect is the main reason aggregate demand slopes downward in the Eurozone: a lower price level reduces money demand…
Correct answer: The interest-rate effect- A. None of these answers
- B. decrease the quantity demanded of money
- C. increase the quantity demanded of money
- D. decreases the demand for money
- E. increases the demand for money
Explanation: A higher interest rate raises the opportunity cost of holding money, so people choose to hold less money.
Correct answer: decrease the quantity demanded of money- A. The money supply shifts right prices fall spending increases and the aggregate demand curve shifts right
- B. The money supply shifts right the interest rate rises investment decreases and the aggregate demand curve shifts left
- C. The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
- D. The money supply shifts right, prices rise, demand curve shifts left
Explanation: An increase in money supply lowers the interest rate, which encourages investment and other interest-sensitive spending.
Correct answer: The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right- A. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy
- B. None of these answers are true
- C. Long lags enhance the ability of policy makers to fine tune the economy
- D. When policy makers implement activist stabilization policies there is a significant risk that their policies may actually have a destabilizing effect
Explanation: Long policy lags make fine-tuning harder because the economy may change before the policy takes effect, potentially causing…
Correct answer: Long lags enhance the ability of policy makers to fine tune the economy- A. The multiplier effects
- B. supply side economics
- C. None of these answers
- D. The crowding out effect
Explanation: The multiplier effect occurs when an initial increase in government purchases raises someone's income, leading to further consumption and…
Correct answer: The multiplier effects- A. Most economists believe that in the short run the greatest impact of a change in taxes is on aggregate supply, not aggregate demand
- B. An increase in taxes shifts the aggregate demand curve to the right
- C. A decrease in taxes shifts the aggregate supply curve to the left
- D. A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.
Explanation: A permanent tax change usually affects consumption more than a temporary change because households adjust their spending based on expected…
Correct answer: A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.- A. decrease government spending Which the shifts the aggregate demand curve to the left
- B. decrease taxes, which shifts the aggregate demand curve to the right
- C. decrease taxes, which shifts the aggregate demand curve to the left
- D. decrease government spending which shifts the aggregate demand curve to the right
Explanation: When output is above its natural rate because of excessive spending, contractionary policy is appropriate.
Correct answer: decrease government spending Which the shifts the aggregate demand curve to the left- A. 4
- B. 7.5
- C. 5
- D. 0.75
Explanation: The simple spending multiplier is calculated as 1 divided by 1 minus MPC: 1/(1 - 0.75) = 4.
Correct answer: 4- A. Increase government spending and decrease taxes
- B. decrease the money supply
- C. decrease government spending and increase taxes
- D. decrease interest rates
Explanation: Pessimism reduces aggregate demand, so the Federal Reserve should use expansionary monetary policy by lowering interest rates.
Correct answer: decrease interest rates