All Free Economics MCQs with Answers

• A. misperceptions theory of the short run aggregate supply curve
• B. classical dichotomy theory of the short run aggregate supply curve
• C. sticky price theory of the short run aggregate supply curve
• D. sticky wage theory of the short run aggregate supply curve

Explanation: The misperceptions theory says suppliers may mistake a fall in the overall price level for a fall in the relative price of their own…

• A. When the economy is at the natural rate of unemployment
• B. When the economy is at the natural rate of investment
• C. When the economy is at the natural rate of aggregate demand
• D. When there is no no unemployment

Explanation: Natural-rate output is the level produced when the economy operates at the natural rate of unemployment, including frictional and…

• A. Is vertical because an equal change in all prices and wages leaves output unaffected
• B. is positively sloped because price expectations and wages tend to be fixed is the long run
• C. shifts right when the government raises the minimum wage
• D. shifts left when the natural rate of unemployment falls

Explanation: Long-run aggregate supply is vertical because changes in the overall price level and wages do not alter the economy’s real productive…

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

Explanation: Greater consumer optimism encourages households to increase consumption at each price level, shifting aggregate demand to the right.

• A. All of these answers shift the long-run aggregate supply curve
• B. An increase in the available capital
• C. An increase in the available labour
• D. An increase in price expectations

Explanation: An increase in price expectations affects short-run aggregate supply, not productive capacity, so it does not shift long-run aggregate…

• A. None of these answers
• B. A depression is a mild recession
• C. A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate together
• D. A recession is when output rises above the natural rate of output

Explanation: Macroeconomic indicators such as income, spending and output generally move together, so several of them can measure economic…

• A. balance of payments
• B. capital account
• C. current account
• D. balance of trade

Explanation: The balance of trade measures the difference between merchandise, or goods, exports and merchandise imports.

• A. credit transactions
• B. debit transactions
• C. unilateral transfers
• D. statistical discrepancy

Explanation: A statistical discrepancy is included when recorded credits and debits do not exactly balance because of errors, omissions or timing…

• A. exports and imports of financial assets
• B. the current account plus capital account
• C. the net export of goods and services
• D. the value of merchandise exports minus imports

Explanation: The balance of trade is specifically the value of merchandise exports minus merchandise imports.

• A. trade deficit and an excess of investment over domestic saving
• B. trade surplus and an excess of investment over domestic saving
• C. trade deficits and an excess of domestic savings over investment
• D. trade surpluses and an excess of domestic saving over investment

Explanation: Rapidly developing countries often invest more than they can finance from domestic saving, so they borrow abroad.

• A. purchases more stocks and bonds from the rest of the world than it sells
• B. purchases more goods from the rest of the world than it sells
• C. sells more goods to the rest of the world than it purchases
• D. sells more stocks and bonds to the rest of the world than it purchases

Explanation: A trade deficit means the value of goods purchased from abroad exceeds the value of goods sold abroad.

• A. the country is a net lender to the rest of the world
• B. the country is running a net capital account surplus
• C. foreign investment in domestic securities is at very low levels
• D. All of the above

Explanation: A current account surplus means national saving exceeds domestic investment, leaving funds lent or invested abroad, so the country is a…

• A. lending more money to other nations
• B. experiencing a surplus in exports of goods an services
• C. reducing its indebtedness to other nations
• D. going further into debt with other nations

Explanation: A current account deficit means a country is spending more abroad than it earns from current international transactions.

• A. is equal to official reserve transactions
• B. occurs because of foreign exchange fluctuations
• C. reflects statistical discrepancies
• D. reflects the difference between flow and stock concepts

Explanation: The balance of payments records transactions during a period, so it is a flow concept.

• A. unilateral transfers
• B. capital account
• C. merchandise account
• D. services account

Explanation: Travel and tourism are services purchased or supplied internationally, not physical merchandise.

• A. the U.S Department of labor
• B. the U.S Department of Agriculture
• C. the U.S Department of commerce
• D. the council of Economic Advisers to the President

Explanation: In the United States, the Department of Commerce, principally through its Bureau of Economic Analysis, compiles the balance-of-payments…

• A. merchandise trade flows
• B. services flows
• C. current account flows
• D. capital flows

Explanation: Capital flows move financial resources across borders, allowing savings in one country to finance investment in another.

• A. capital outflows
• B. merchandise exports
• C. private gifts to foreigners
• D. foreign aid granted to other nations

Explanation: Exports bring foreign exchange receipts into the country and are recorded as credit items.

• A. balance of international indebtedness
• B. balance of financial transactions
• C. balance of payments
• D. income statements

Explanation: The balance of payments is the systematic record of a country's economic transactions with the rest of the world during a specified…

• A. merchandise imports equal merchandise exports
• B. capital imports equal capital exports
• C. services exports equal services imports
• D. the total surplus or deficit equals zero

Explanation: Because every international transaction has matching credit and debit entries, the balance of payments balances in accounting terms.