All Free Economics MCQs with Answers

• A. an increase in public saving
• B. a decrease in private saving
• C. None of these answers
• D. a decrease in public savings

Explanation: A budget deficit occurs when government spending exceeds revenue, so public saving, which is revenue minus spending, decreases.

• A. raise the real interest rate and decrease the quantity of loanable funds demanded for investment
• B. lower the real interest rate and increase the quantity of loaable funds demanded for investment
• C. raise the real interest rate and increase the quantity of loandable funds demanded for investment
• D. lower the real interest rate and decrease the quantity of loanable funds demanded for investment

Explanation: A larger deficit reduces public saving and shifts the supply of loanable funds left, pushing up the real interest rate.

• A. Lower taxes on the returns to saving, provide investment tax credits and lower the deficit
• B. Increase tax on the returns to saving Provide investment tax credits and increase the deficit
• C. Increase tax on the returns to saving Provide investment tax credits and lower the deficit
• D. Lower taxes on the returns to saving Provide investment tax credits and increase the deficit

Explanation: Lower taxes on saving increase the incentive to save, investment tax credits encourage capital formation, and a lower deficit raises…

• A. The purchase of goods and services
• B. The purchase of capital equipment and structures
• C. When we place our saving in the bank
• D. The purchase of stocks and bonds

Explanation: In macroeconomics, investment means spending on newly produced capital goods such as machinery, equipment and structures.

• A. Saving is unchanged
• B. There is an increased in saving and the economy should grow more quickly
• C. There is a decrease in saving and the economy should grow more slowly
• D. There is not enough information to determine what will happen to saving

Explanation: National saving equals income minus private consumption and government purchases.

• A. none of these answers
• B. investment + consumption expenditures
• C. private saving + public saving
• D. GDP government purchases

Explanation: National saving has two components: private saving by households and firms, plus public saving, which is tax revenue minus government…

• A. Probability of default
• B. Price-earnings ratio
• C. dividend
• D. tax treatment

Explanation: Credit risk is the risk that a borrower will fail to make promised interest or principal payments, so it is measured by the probability of…

• A. the real interest rate should fall
• B. the real interest rate should rise
• C. the impact on the real interest rate is indeterminate
• D. the real interest rate should not change

Explanation: An investment tax credit increases the demand for loanable funds, tending to raise the real interest rate, while a lower tax on saving…

• A. intermediation
• B. equity finance
• C. crowding out
• D. the investment fund effect

Explanation: Crowding out occurs when a larger budget deficit reduces national saving, raises borrowing pressure and interest rates, and thereby lowers…

• A. a reduction in the budget deficit
• B. an increase in the budget deficit
• C. an investment tax credit
• D. None of the above

Explanation: Reducing the budget deficit raises national saving and shifts the supply of loanable funds right, increasing investment.

• A. The supply of loanable funds in the Pakistan loanable funds market to shift to the right and the real interest rate to fall.
• B. The demand for loanable funds in the Pakistan loanable funds market to shift to the right and the real interest rate to rise
• C. The demand for loandable funds in the Pakistan loanable funds market to shift to the right and the real interest rate to fall
• D. The supply of loandable funds in the Pakistan loanable funds market to shift to the right and the real interest rate to rise

Explanation: Greater thrift means households save more, increasing the supply of loanable funds.

• A. A bond issued by a startup company
• B. A government bond issued by the government of France.
• C. A bond issued by a blue-chip company
• D. An investment funds with portfolio of corporate bonds issued by blue chip companies

Explanation: A startup normally has greater default risk than a government or established blue-chip borrower, so its bond must offer the highest…

• A. buyers and sellers
• B. husbands and wives.
• C. borrowers and lenders.
• D. labor unions and firms

Explanation: A financial intermediary, such as a bank or mutual fund, channels funds from lenders or savers to borrowers.

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

Explanation: Better employee training raises labour productivity, allowing firms to produce more at each price level.

• A. consumption falls
• B. investment falls
• C. Exports fall
• D. imports fall

Explanation: Aggregate demand equals consumption plus investment plus government spending plus exports minus imports.

• A. increase price but not output
• B. increase output but not price
• C. increase output and price
• D. decrease output and price

Explanation: With totally inelastic aggregate supply, output is fixed regardless of aggregate demand.

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

Explanation: Imports are a leakage from aggregate expenditure, so higher import spending reduces net exports and shifts aggregate demand to the left.

• A. the charities economy
• B. the demand side of the economy
• C. the underground economy
• D. the supply side of the country

Explanation: Reaganomics emphasized reducing taxes and regulation to strengthen production, investment, and employment incentives.

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

Explanation: New classical reasoning emphasizes work incentives: generous welfare benefits can reduce the cost of remaining unemployed or out of work…

• A. aggregate supply will increase will increase aggregate demand will decrease and the price level will decrease
• B. aggregate supply will increase will increase aggregate output will increase and the price level will decrease
• C. aggregate supply will increase will increase aggregate output will increase and the price level will increase
• D. both aggregate supply and demand will increase will increase and the price level will increase

Explanation: Lower taxes can strengthen incentives to work and invest, shifting aggregate supply to the right.