Free Macroeconomics MCQs with Answers
1,499 Macroeconomics MCQs from Economics, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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1,499 questions · page 24 of 75
- A. the contention that workers in one industry may be unwilling to accept a wage cut unless they know that workers in other industries are receiving similar cuts
- B. employment contracts that stipulate workers' wages usually for a period of one to three years
- C. unspoken agreements between workers and firms that firms will not cut wages
- D. the incentive that firms may have to hold wages above the market clearing rate
Explanation: The relative-wage argument says workers resist a cut if they believe comparable workers elsewhere have not also suffered cuts, because the…
Correct answer: the contention that workers in one industry may be unwilling to accept a wage cut unless they know that workers in other industries are receiving similar cuts- A. Shifts in aggregate supply
- B. changes in export demand due to the state of the world economy
- C. business confidence
- D. business expectations
Explanation: Real business cycle theory attributes fluctuations mainly to real supply-side shocks, such as changes in technology or productivity.
Correct answer: Shifts in aggregate supply- A. a high rate of inflation: along with a low rate of unemployment
- B. simultaneously low rates of inflation and unemployment
- C. simultaneously high rates of inflation and unemployment
- D. a high rate of unemployment along with a low rate of inflation
Explanation: The 1970s brought stagflation, the unusual combination of high inflation and high unemployment.
Correct answer: simultaneously high rates of inflation and unemployment- A. Vertical or nearly vertical
- B. upward sloping
- C. downward sloping
- D. horizontal or nearly horizontal
Explanation: If input prices adjust rapidly to output prices, firms’ real costs and output do not change much when prices change, making aggregate…
Correct answer: Vertical or nearly vertical- A. negative relationship between the inflation rate and labor demand
- B. positive relationship between labor supply and the inflation rate
- C. positive relationship between the inflation rate and the employment the
- D. negative relationship between the inflation rate and the unemployment rate
Explanation: The Phillips curve traditionally shows an inverse relationship between inflation and unemployment: higher inflation is associated with…
Correct answer: negative relationship between the inflation rate and the unemployment rate- A. that can be produced if structural unemployment is zero
- B. that can be produced at a zero-unemployment rate
- C. that can be sustained in the long run without inflation
- D. that can be sustained in the long run, if the inflation rate is zero
Explanation: Potential GDP is the economy’s sustainable output when resources are normally utilised and inflation is stable rather than accelerating.
Correct answer: that can be sustained in the long run without inflation- A. have chosen not to work at the market wage
- B. have given up looking for a job but would accept a job at the current wage if one were offered to them.
- C. are too productive to be hired at the current wage
- D. are unable to find a job at the current wage rate
Explanation: Classical economists assume flexible wages clear the labour market, so anyone not working at the market wage has chosen not to work at…
Correct answer: have chosen not to work at the market wage- A. a vertical (or almost vertical)
- B. a downward sloping
- C. a horizontal (or almost horizontal)
- D. an upward sloping
Explanation: The classical model assumes wages and prices adjust so the economy operates at potential output, making aggregate supply vertical or…
Correct answer: a vertical (or almost vertical)- A. minimum wage agreements
- B. trade
- C. scale economies
- D. insider-outsider distinctions
- E. efficiency wages
- F. all of the above
Explanation: Minimum wages, efficiency wages, insider-outsider effects, trade-related structural change and scale-related labour demand can all keep…
Correct answer: all of the above- A. price level, aggregate economy
- B. tax rate, government budget
- C. wage rate, labor market
- D. interest rate, market for loanable funds
Explanation: In the classical labor market, a wage above the equilibrium level creates excess labor supply, so more people want jobs than firms want to…
Correct answer: wage rate, labor market- A. shoe leather costs
- B. menu costs
- C. income redistribution
- D. uncertainly
- E. all of the above
Explanation: Inflation can impose shoe-leather costs, menu costs, arbitrary income redistribution, and uncertainty about future prices and returns.
Correct answer: all of the above- A. horizontal, natural rate of inflation
- B. horizontal natural rate of unemployment
- C. vertical natural rate of inflation
- D. vertical equilibrium rate of unemployment
Explanation: In the long run, unemployment returns to its natural or equilibrium rate regardless of the inflation rate, so the Phillips curve is…
Correct answer: vertical equilibrium rate of unemployment- A. numbers of employees
- B. welfare plans
- C. budget deficits
- D. expenditures
Explanation: A large budget deficit can raise aggregate demand when government spending exceeds revenue, creating demand-pull inflationary pressure…
Correct answer: budget deficits- A. fall
- B. increase
- C. remain the same
- D. fluctuates
Explanation: A rise in oil prices is an adverse supply shock, but accepting lower real interest rates is an expansionary monetary response that…
Correct answer: increase- A. long run, short run
- B. flexible imperfect markets
- C. short-term long run
- D. long run, imperfect markets
Explanation: Keynesian analysis emphasizes short-run fluctuations when wages and prices may be rigid, while the classical model is mainly a long-run…
Correct answer: short-term long run- A. demand, supply
- B. IS, LM
- C. AD, AS
- D. Labor demand, labor supply
Explanation: The equilibrium price level and inflationary outcome are found where aggregate demand intersects aggregate supply.
Correct answer: AD, AS- A. inflation
- B. a supply shock
- C. crowding out
- D. inflation illusion
Explanation: A 10% wage increase matched by a 10% rise in prices leaves real purchasing power unchanged, but the person feels better off because of a…
Correct answer: inflation illusion- A. wages and prices are sticky
- B. wages and prices are flexible
- C. the economy may operate below full capacity
- D. the economy is always at full capacity
- E. A and C
- F. B and D
Explanation: The classical model assumes flexible wages and prices, allowing markets to clear and the economy to operate at full employment or…
Correct answer: B and D- A. minimize negotiation costs
- B. minimize unemployment effects
- C. guarantee that only the least productive workers will be laid off.
- D. will equitable spread the layoffs among junior and senior workers
Explanation: Although fixed contracts can cause layoffs when demand falls, they reduce the repeated bargaining and renegotiation required between…
Correct answer: minimize negotiation costs- A. New classical economists
- B. Keynesian.
- C. Monetarists
- D. Marxists.
Explanation: Monetarists, especially Milton Friedman, added expected inflation to the Phillips-curve analysis and argued that the…
Correct answer: Monetarists