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 76 of 202
- A. Progressive and thus bear down on the wealthy
- B. regressive and thus bear down on the poor
- C. proportional and thus bear down on all consumers in the same manner
- D. deflationary and thus result in reductions in the price of imports
Explanation: Import tariffs generally impose a relatively heavier burden on lower-income households because poorer households spend a larger share of…
Correct answer: regressive and thus bear down on the poor- A. economic downturn and recession generally result in greater protectionism
- B. because domestic consumers outnumber domestic producer's policy markers usually enact Free-trade policies to satisfy the consumer majority:
- C. When domestic exporting companies are organized, policy tends to favor freer trade
- D. Policy tends to favor freer trade in countries whose imports are inputs into critical industries
Explanation: The claim in option b is the exception because consumers are often less organized politically than protected producers, so producer groups…
Correct answer: because domestic consumers outnumber domestic producer's policy markers usually enact Free-trade policies to satisfy the consumer majority:- A. be less than 12 percent and can be negative
- B. be less than 12 percent but must be greater than zero
- C. equal 6 percent
- D. exceed 30 percent
Explanation: When the tariff on inputs is higher than the tariff on the finished product, protection of domestic value added falls and may become…
Correct answer: be less than 12 percent and can be negative- A. specific tariff
- B. ad valorem tariff
- C. compound tariff
- D. effective tariff
Explanation: A compound tariff combines a specific charge per unit, Rs25 per pen, with an ad valorem charge based on value, 12 percent.
Correct answer: compound tariff- A. 5 percent
- B. 10 percent
- C. 15 percent
- D. 20 percent
Explanation: The equivalent ad valorem rate is the specific tariff divided by the world price: $50 ÷ $500 = 0.10, or 10 percent.
Correct answer: 10 percent- A. only on imports
- B. only on exports
- C. on both imports and exports
- D. on imports exports and nontraded goods
Explanation: Tariffs are taxes imposed on goods entering a country, so they are generally import tariffs.
Correct answer: only on imports- A. Prices to rise and output to rise
- B. Price to fall and output to remain unchanged
- C. Prices to fall and output to fall
- D. prices to rise and output to remain unchanged
Explanation: In the long run, output is fixed at its natural rate because prices and wages adjust, so an increase in money supply raises the price…
Correct answer: prices to rise and output to remain unchanged- A. Shift aggregate demand to the left
- B. Shift short run aggregate supply to the left
- C. shift aggregate demand to the right
- D. shift short-run aggregate supply to the right
Explanation: A recession means output is below its natural rate, so policymakers can increase output by shifting aggregate demand to the right through…
Correct answer: shift aggregate demand to the right- A. rising prices and rising output
- B. rising prices and falling output
- C. falling prices and falling output
- D. falling prices and rising output
Explanation: Stagflation combines economic stagnation with inflation, meaning output falls or stagnates while the price level rises.
Correct answer: rising prices and falling output- A. Price rise; output falls
- B. Price fall; output rises
- C. Price rise; output rises
- D. Price fall; output falls
Explanation: A drought reduces agricultural production and shifts short-run aggregate supply left.
Correct answer: Price rise; output falls- A. Price fall; output rises
- B. Price fall; output falls
- C. Price rise; output fall
- D. Price rise; output rise
Explanation: Higher military spending increases aggregate demand, shifting the AD curve right.
Correct answer: Price rise; output rise- A. sticky-wage theory of the short-run aggregate supply curve
- B. classical dichotomy theory of the short-run aggregate supply curve
- C. misperceptions theory of the short-run aggregate supply curve
- D. sticky-price theory of the short run aggregate supply curve
Explanation: With nominal wages fixed by contracts, a fall in the price level raises firms’ real wage costs, so they reduce production.
Correct answer: sticky-wage theory of the short-run aggregate supply curve- A. lower prices increase the value of money holding and consumers spending increase
- B. lower prices decrease the value of money holding and consumers spending decrease
- C. lower prices reduce money holding increase lending, interest rates fall and investment spending increase
- D. lower prices increase money holding decrease lending, interest rates rise and investment spending falls
Explanation: When prices fall, existing money balances have greater real purchasing power, making households feel wealthier and increasing consumption.
Correct answer: lower prices increase the value of money holding and consumers spending increase- A. The exchange-rate effect
- B. The wealth effect
- C. The classical dichotomy/monetary neutrality effect
- D. The interest-rate effect
Explanation: The exchange-rate, wealth, and interest-rate effects explain why a lower price level raises aggregate quantity demanded.
Correct answer: The classical dichotomy/monetary neutrality effect- A. lower prices increase money holdings decrease lending interest rates rise, and investment spending falls
- B. lower prices increase the value of money holding and consumer spending increases
- C. lower prices decrease the value of money holdings and consumers spending decreases
- D. lower prices reduce money holdings increase lending interest rates fall, and investment spending increase
Explanation: A lower price level reduces the amount of money people wish to hold in nominal terms, lowering the interest rate and encouraging…
Correct answer: lower prices reduce money holdings increase lending interest rates fall, and investment spending increase- A. fail to respond to the adverse supply shock and allow the economy to adjust on its own.
- B. respond to the adverse supply shock by decreasing aggregate demand which lower prices
- C. respond to the adverse supply shock by decreasing short run aggregate supply
- D. respond to the adverse supply shock by increasing aggregate demand, which further raises prices
Explanation: Accommodating an adverse supply shock means expanding aggregate demand, often through monetary or fiscal policy.
Correct answer: respond to the adverse supply shock by increasing aggregate demand, which further raises prices- A. People will reduce their price expectations and the short run aggregate supply will shift right
- B. People will raise their price expectations and aggregate demand will shift left
- C. People will raise their price expectations and the short run aggregate supply will shift left
- D. People will reduce their price expectations and aggregate demand will shift right
Explanation: In a recession, actual output is below its natural level, so wages and price expectations gradually fall.
Correct answer: People will reduce their price expectations and the short run aggregate supply will shift right- A. a decrease in the money supply
- B. a drop-in oil prices
- C. an increase in government spending on military equipment
- D. None of these answers
- E. an increase in price expectations
Explanation: Oil is an important input, so a fall in oil prices lowers firms’ production costs and shifts short-run aggregate supply to the right.
Correct answer: a drop-in oil prices- A. Output rises; prices are unchanged from the initial value
- B. Output and the price level are unchanged from their initial values
- C. Output falls; prices are unchanged from the initial value
- D. Prices fall; output is unchanged from its initial value
Explanation: The drought initially shifts short-run aggregate supply left, but in the long run the economy returns to its natural output.
Correct answer: Output and the price level are unchanged from their initial values- A. Output falls; prices are unchanged from the initial value
- B. Price fall; output is unchanged from its initial value
- C. Output and the price level are unchanged from their initial values
- D. Prices rise; output is unchanged from its initial value
Explanation: Higher military spending shifts aggregate demand right, raising output temporarily.
Correct answer: Prices rise; output is unchanged from its initial value