All Free Economics MCQs with Answers

• A. shift the aggregate supply curve to the right
• B. shift the aggregate supply curve to the left
• C. shift the aggregate demand curve to the left
• D. shift the aggregate demand curve to the right

Explanation: An increased money supply lowers interest rates and raises interest-sensitive spending, producing an initial rightward shift of aggregate…

• A. shifts money demand to the right and increases the interest rate
• B. None of these answers
• C. shifts money demand to the right and decreases the interest rate
• D. shifts money demand to the left and increases the interest rate
• E. shifts money demand to the left and decrease the interest rate

Explanation: A higher price level increases the amount of money needed for transactions, shifting money demand rightward.

• A. aggregate supply and aggregate demand
• B. the supply and demand for loanable funds
• C. the supply and demand for money
• D. the supply and demand for labor

Explanation: Keynes’s liquidity-preference theory explains the interest rate through equilibrium between the demand for money and the money supply.

• A. market orientated economists
• B. left-wing theorists
• C. Keynesian
• D. New-Keynesian

Explanation: Market-oriented economists generally favour wage and tax flexibility and reduced benefits to improve labour-market incentives in depressed…

• A. reduce poverty
• B. reduce unemployment
• C. weaken the power of trade unions
• D. help small businesses

Explanation: New classical reasoning treats generous benefits as potentially reducing the incentive to accept work or search for jobs.

• A. initially increase and then decrease
• B. decrease continuously
• C. rise continuously
• D. initially decrease and then increase

Explanation: The Laffer curve reflects a trade-off: at low tax rates, raising rates increases revenue, but beyond the revenue-maximising rate, higher…

• A. supply side economists
• B. neo-Keynesian economists
• C. rational -expectations economists
• D. New classical economists

Explanation: Supply-side economists focus on how high taxes and regulation weaken incentives to work, save and invest, thereby reducing productive…

• A. the level of national income
• B. the level of aggregate demand
• C. the rate of change of national income
• D. expectations

Explanation: The accelerator principle links induced investment to changes in output or national income, not merely to its existing level.

• A. an increase in income and an increase in overall saving
• B. a decrease in income and an overall decrease in saving
• C. a decrease in income but an increase in saving
• D. an increase in income but no overall change in saving

Explanation: If everyone tries to save more, consumption and aggregate demand fall, reducing income and output; this fall in income can cause total…

• A. 1/MPS
• B. 1/(1+ MPC)
• C. 1 - MPC
• D. 1/MPC

Explanation: With no government or foreign sector, the simple spending multiplier is 1 divided by the marginal propensity to save, and MPS equals 1…

• A. aggregate output equals consumption minus investment
• B. saving equals consumption
• C. Planned aggregate expenditure equals aggregate output
• D. planned aggregate expenditure equals consumption

Explanation: Macroeconomic equilibrium occurs when planned aggregate expenditure equals actual aggregate output, so firms have no unintended buildup or…

• A. the fiscal stance
• B. the tax multiplier
• C. the marginal tax propensity
• D. the average tax propensity

Explanation: The marginal propensity to tax measures the fraction of an additional unit of income that is paid as tax.

• A. the average amount of income that is saved
• B. the fraction of a change in income that is saved
• C. the ratio of saving to income
• D. the ratio of income to saving

Explanation: MPS measures the part of an additional unit of income that is saved, so it is the change in saving divided by the change in income.

• A. The marginal propensity to consume.
• B. The amount of income when consumption is zero
• C. The average consumption level
• D. The amount of consumption when income is zero

Explanation: In C = a + bY, b measures the increase in consumption caused by an additional unit of income, so it is the marginal propensity to consume.

• A. aggregate investment
• B. aggregate expenditure
• C. aggregate demand
• D. aggregate output

Explanation: Aggregate output is the total value or quantity of goods and services produced in an economy during a period.

• A. Is perfectly interest elastic
• B. Is perfectly interest inelastic
• C. Means that an increase in money supply leads to a fall in the interest rate
• D. Means that an increases in the money supply leads to an increases in the interest rate

Explanation: In a liquidity trap, people are willing to hold any additional money at the prevailing very low interest rate, making money demand…

• A. The marginal propensity to consume is constant
• B. The economy is at full employment
• C. There is a constant relationship between net investment and the rate of change of output
• D. The multiplier is constant

Explanation: The accelerator principle links net investment to changes in output, so a constant relationship between the two is its central assumption.

• A. GDP increase
• B. Inflation is likely to increase
• C. Stock levels are likely to increase
• D. Investment in equipment is likely to increase

Explanation: When sales and output growth slow unexpectedly, firms may find that production exceeds sales, causing inventories or stock levels to…

• A. National income will increase
• B. National income will decrease
• C. National income will stay in equilibrium
• D. Price will fall

Explanation: When injections exceed withdrawals, aggregate expenditure is greater than current output, causing firms to reduce inventories and increase…

• A. Decrease tax receipts
• B. Worsen the balance of trade
• C. Automatically cause an increase in government spending
• D. causes an increase in injections into the economy

Explanation: Higher national income generally produces higher tax receipts because taxable incomes and spending tend to rise.