All Free Economics MCQs with Answers

• A. primary products such as tin and bauxite
• B. intermediate products
• C. labor-intensive agricultural products
• D. labor-intensive manufacturing products

Explanation: Developing countries have traditionally depended heavily on exports of primary commodities such as minerals, metals and agricultural raw…

• A. the world Bank
• B. the international Monetary Fund
• C. The Generalized System of Preferences
• D. All of the above

Explanation: The World Bank and IMF provide financial and developmental support, while the Generalized System of Preferences gives eligible developing…

• A. mixed evidence that does not substantiate the deterioration hypothesis
• B. overwhelming support for the deterioration hypothesis
• C. overwhelming opposition to the deterioration hypothesis
• D. None of the above

Explanation: Empirical research on the long-run terms of trade of developing countries has produced mixed results, so it does not conclusively…

• A. Deficit Budget
• B. Reduction in taxation
• C. Increase in public expenditure
• D. Reverse of inflation

Explanation: Deflation is a sustained fall in the general price level, so it is commonly described as the reverse of inflation.

• A. Promissory note
• B. Currency note
• C. Exchange rate
• D. Bank cheque

Explanation: A currency note is legal tender issued as money for transactions. A promissory note and cheque are credit instruments, while an exchange…

• A. Feudal System
• B. Capitalist System
• C. Fascist System
• D. Communist System

Explanation: The slogan describes the communist principle of distribution, where people contribute according to their ability and receive according to…

• A. Gold currency
• B. Hard currency
• C. Silver currency
• D. Soft currency

Explanation: A persistent balance-of-payments deficit increases demand for foreign currency and weakens the domestic currency, making it a soft…

• A. Balance of trade
• B. Capital receipts and payments
• C. Savings and investment account
• D. A and B of above

Explanation: The balance of payments records both current transactions, including the balance of trade, and capital or financial receipts and payments.

• A. Accepting public deposits
• B. Granting loan and advances
• C. Undertaking agency functions
• D. Banker to the government

Explanation: Accepting deposits, lending and agency services are normal commercial-bank functions, whereas acting as banker to the government is…

• A. Buys govt. securities in stock market
• B. Sells govt. securities
• C. Lowers discount rate
• D. B and C of above

Explanation: Selling government securities withdraws money from purchasers and reduces the reserves available to commercial banks for lending.

• A. The exchange rates
• B. The interest rates
• C. The money supplies
• D. The real national income

Explanation: When banks create credit, they create new deposit money, so the immediate effect is an increase in the money supply.

• A. Low rate of interest
• B. Very low rate of interest
• C. High rate of interest
• D. Very high rate of interest

Explanation: A liquidity trap occurs when interest rates are already very low, so people prefer holding cash and further increases in money supply do…

• A. The cash reserve requirement
• B. The amount of cash available
• C. The number of branches of a bank
• D. A and B of above

Explanation: Credit creation depends on both the reserve requirement, which limits the deposit multiplier, and the cash or reserves available to the…

• A. The number of times a unit of money changes hands daily
• B. The number of times as unit of money changes hands monthly
• C. The number of times a unit of money changes hands annually
• D. The number of times a unit of money changes value

Explanation: Velocity of money measures how many times, on average, one unit of money is used in transactions during a given period.

• A. Availability of gold in the country
• B. Availability of dollars in the country
• C. Demand for money in the country
• D. Tax collection

Explanation: In a modern monetary system, currency issuance is linked mainly to the economy’s demand for money and monetary policy rather than to gold…

• A. Increase in nominal GNP
• B. Increase in real GNP
• C. Increase in personal income
• D. Increase in government revenue

Explanation: Real GNP removes the effect of price changes, so its increase reflects growth in actual output rather than merely inflation.

• A. Bearish
• B. Bullish
• C. Hottest
• D. Rising up

Explanation: A bullish market is one in which prices are rising or are expected to rise.

• A. An increases demand for its exports
• B. Increased demand for its imports
• C. An increased inflow of capital
• D. None of the above

Explanation: Greater demand for imports increases the supply of the country’s currency in the foreign-exchange market, tending to reduce its value.

• A. Increase in money supply
• B. Fall in production
• C. Increase in money supply and fall in production
• D. Decrease in money supply and fall in production

Explanation: Inflation can result from too much money chasing goods, from reduced production, or from both together.

• A. Foreign income
• B. Capital consumption allowance
• C. Indirect taxes
• D. Direct taxes

Explanation: Net national income is obtained by subtracting capital consumption allowance, or depreciation, from gross national income.