All Free Economics MCQs with Answers

• A. how unemployment could have persisted for so long during the Great Depression
• B. The increase in the growth rate of real output in the 1950s
• C. the stagflation of the 1970s
• D. Why policy changes that are perceived as permanent have more of an impact on a person's behaviour than policy changes that are viewed as temporary.

Explanation: New classical theories developed partly in response to the stagflation of the 1970s, which challenged the stable inflation-unemployment…

• A. not constant and the quantity theory of money does hold.
• B. constant and the quantity theory of money does hold.
• C. not constant and the quantity theory of money does not hold.
• D. constant and the quantity theory of money does not hold.

Explanation: When money demand varies with the interest rate, velocity also varies because velocity is linked to the public’s demand for money.

• A. the fallacy of composition
• B. negative entropy.
• C. hysteresis.
• D. ceteris paribus

Explanation: Hysteresis is the persistence of an economic condition, such as unemployment, even after the original shock or cause has disappeared.

• A. consistently overestimate the actual rate of inflation in the future.
• B. are always correct
• C. consistently underestimate the actual rate of inflation in the future
• D. are correct on average, but are subject to errors that are distributed randomly

Explanation: Rational expectations do not imply perfect forecasts; people use available information, so their errors may occur but should not show a…

• A. slump
• B. inflation
• C. stagflation
• D. stagnation

Explanation: Stagflation combines stagnant economic conditions, often with high unemployment, and inflation, meaning a continuing rise in the general…

• A. laissez-faire.
• B. monetary policy
• C. fine tuning
• D. automatic stablisers

Explanation: Increasing government spending deliberately to reduce unemployment is discretionary fiscal policy, commonly called fine-tuning.

• A. stagflation in the late 1970s
• B. demand-pull inflation in the 1960s
• C. low growth rates in the 1950s
• D. The prolonged existence of high unemployment during the Great depression

Explanation: Keynesian economics gained prominence because classical theory could not adequately explain the prolonged mass unemployment of the Great…

• A. requires fine tuning to reach full employment
• B. can never deviate from full employment
• C. will never be at full employment
• D. is self-correcting.

Explanation: Classical economists believed flexible wages and prices would restore equality between aggregate demand and supply, making the economy…

• A. market prices
• B. sticky prices
• C. fixed prices
• D. regulatory prices

Explanation: Sticky prices are prices that adjust slowly rather than immediately clearing the market when supply or demand changes.

• A. special economic zones
• B. liberalized trade monopoly zones
• C. Economic Union zones
• D. Communist free trade areas

Explanation: China established special economic zones beginning in 1979 to attract foreign investment through relaxed regulations, duty-free imports…

• A. contractionary monetary and fiscal policies
• B. currency devaluation
• C. long-run institutional and structural economic change
• D. short term-adjustment with a human face

Explanation: ECLA structuralists argued that underdevelopment arose from deep structural and institutional weaknesses, not merely short-term monetary…

• A. U.S
• B. OECD
• C. IMF
• D. OPEC

Explanation: The International Monetary Fund lends to countries facing persistent balance-of-payments difficulties and serves as an international…

• A. Gosplan
• B. Gosagroprom
• C. nomenklatura system
• D. Parastatals

Explanation: The nomenklatura system was the Communist Party's system for controlling appointments and promotions to important state and enterprise…

• A. Transitional Monetary Fund
• B. World Bank
• C. European Bank for Reconstruction and Development
• D. OECD

Explanation: The European Bank for Reconstruction and Development was created to finance the transition toward market economies in Eastern Europe and…

• A. agricultural bank only
• B. urban credit cooperatives
• C. mono bank system
• D. housing savings banks

Explanation: Before 1978, China’s banking system was dominated by a single state-owned bank that performed central-bank and commercial-bank functions.

• A. Japan and Korea
• B. Brazil and Argentina
• C. Algeria and Yugoslavia
• D. Singapore and Malaysia

Explanation: Algeria and Yugoslavia are examples of countries that failed to correct persistent external imbalances, making them vulnerable to economic…

• A. switching spending from domestic to foreign sources
• B. devaluing local currencies
• C. increase trade restrictions by imposing quota
• D. increase government spending

Explanation: Expenditure switching means shifting demand from foreign goods toward domestically produced goods.

• A. full employment and price stability
• B. exports minus imports
• C. monetary policy offsetting fiscal policy
• D. exports equal to imports

Explanation: Internal balance combines full employment with price stability, so an economy uses its resources fully without substantial inflation.

• A. Shifts the supply of loanable funds to the left and increase the real interest rate
• B. Shift the supply of loanable funds to the right and reduces the real interest rate.
• C. Shifts the demand for loanable funds to the right and increases the real interest rate.
• D. Shifts the demand for loanable funds to the left and reduces the real interest rate

Explanation: A budget surplus raises public saving and therefore national saving, shifting the supply of loanable funds to the right.

• A. Real interest rates rise and investment falls
• B. Real interest rates rise and investment rises
• C. Real interest rates fall and investment rises
• D. Real interest rates fall and investment falls

Explanation: Lower saving at every real interest rate shifts the supply of loanable funds left, raising the equilibrium interest rate.