All Free Economics MCQs with Answers

• A. three years
• B. six months
• C. a year
• D. two years

Explanation: The conventional rule defines a recession as a fall in national output for at least two consecutive quarters, which is approximately six…

• A. wholesale price index (WPI)
• B. GDP deflator
• C. Producer price index (PPI)
• D. consumer price index

Explanation: The consumer price index measures changes in the prices of a representative basket of goods and services bought by households, so it is…

• A. unemployment rate
• B. labor force rate
• C. employment rate
• D. unemployment population ratio

Explanation: The unemployment rate is calculated as unemployed people divided by the labour force, multiplied by 100.

• A. income-expenditures diagram
• B. aggregate demand-aggregate supply diagram
• C. circular flow diagram
• D. income-price diagram

Explanation: A circular flow diagram traces income received and payments made among households, firms, government, and the foreign sector.

• A. reduces, reduces
• B. reduces, increase
• C. increase, reduces
• D. increases, increases

Explanation: Higher export demand is an injection that raises aggregate demand and output.

• A. increase, increase
• B. falls, increase
• C. falls, fall
• D. increase, fall

Explanation: When income falls, households generally buy fewer imports, so import spending falls and the trade balance tends to improve.

• A. AD = C + I
• B. AD = C + I + G
• C. AD = C + I + G + X + Z
• D. AD = C + I + G + X - Z

Explanation: For an open economy with government, aggregate demand equals consumption plus investment, government spending, and exports, minus imports…

• A. move into surplus
• B. move into deficit
• C. remain unchanged
• D. None of the above above

Explanation: When income rises at a fixed tax rate, tax revenue increases while government spending is initially unchanged.

• A. C + 1
• B. C + G
• C. I + G
• D. C + 1 + G

Explanation: Without a foreign sector, aggregate demand consists of consumption, investment and government spending, written as C + I + G.

• A. 2
• B. 1/2
• C. 0.2
• D. 20

Explanation: The expenditure multiplier is 1/(1 − MPC), so with MPC of 0.5 it equals 1/0.5 = 2.

• A. consumption income
• B. investment output
• C. savings investment
• D. output aggregate demand

Explanation: The multiplier measures how much total output changes in response to a change in aggregate demand or autonomous spending.

• A. households to save more
• B. firms to produce less
• C. firms to produce more
• D. the MPC to change

Explanation: If desired spending exceeds current income, firms experience an unintended fall in inventories.

• A. fall
• B. not change
• C. fluctuate
• D. increase

Explanation: A positive slope means consumption rises as income rises, while a slope below one means consumption rises by less than the increase in…

• A. personal saving and private investment
• B. personal saving and personal consumption
• C. personal consumption and private investment
• D. None of the above

Explanation: In an economy with no government or foreign trade, aggregate demand has only household consumption and private investment. Thus it is C + I.

• A. consumption
• B. investment
• C. exports
• D. work in the home

Explanation: National output measures recorded market production, but unpaid household work is generally not bought and sold in markets.

• A. At the present time
• B. corrected for tax changes
• C. corrected for changes in interest rates
• D. At current prices

Explanation: Nominal GNP values current production using the prices prevailing in the same period.

• A. consumption investment exports
• B. investment exports transfer payments
• C. investment government expenditure exports
• D. taxes exports, transfer payments

Explanation: Injections add spending to the circular flow: investment by firms, government expenditure and exports purchased by foreigners.

• A. unemployment
• B. inflation
• C. economic growth
• D. All of the above

Explanation: Macroeconomics studies economy-wide outcomes, including unemployment, inflation and economic growth.

• A. compare living standards of different countries
• B. pay wages b multinational companies
• C. estimate the costs of economic growth
• D. convert nominal GDP to real GDP

Explanation: Purchasing power parity adjusts for differences in price levels between countries, allowing meaningful comparisons of the goods and…

• A. taxes
• B. prices
• C. exchange rates
• D. interest rates

Explanation: Real GDP values current production using prices from a fixed base year, removing the effect of inflation.