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.
Last updated
1,499 questions · page 34 of 75
- A. pegged exchange rates
- B. freely floating exchange rates
- C. managed floating exchange rates
- D. crawling exchange rates
Explanation: A small country that trades mainly with one partner benefits from reducing exchange-rate uncertainty with that partner.
Correct answer: pegged exchange rates- A. very high rates of inflation occur domestically
- B. foreigners discriminate against domestic products
- C. technological advance is superior abroad
- D. the domestic currency is undervalued relative to other currencies
Explanation: An undervalued domestic currency makes exports cheaper and imports more expensive, which tends to produce a balance-of-payments surplus…
Correct answer: the domestic currency is undervalued relative to other currencies- A. appreciates against foreign currencies
- B. depreciates against foreign currencies
- C. be officially revalued by the government
- D. be officially devalued by the government
Explanation: Lower U.S. inflation makes U.S. goods relatively cheaper than those of its trading partners, increasing demand for U.S.
Correct answer: appreciates against foreign currencies- A. dual exchange rates
- B. managed floating exchange rates
- C. adjustable pegged exchange rates
- D. crawling pegged exchange rates
Explanation: A dual exchange-rate system separates commercial transactions from financial transactions, allowing the commercial rate to remain stable…
Correct answer: dual exchange rates- A. gold
- B. silver
- C. a single currency
- D. a basket of currencies
Explanation: With several major trading partners, pegging to one currency can create instability against the others.
Correct answer: a basket of currencies- A. floating exchange rates
- B. pegged exchanged rates
- C. managed floating exchange rates
- D. dual exchange rates
Explanation: Under a freely floating exchange-rate system, market forces determine the rate, so the central bank does not need to use foreign-exchange…
Correct answer: floating exchange rates- A. U.S exports tend to rise, and imports tend to fall
- B. U.S imports tend to rise, and exports tend to fall
- C. U.S foreign exchange reserves tend to rise
- D. U.S foreign exchange reserves remain constant
Explanation: Higher U.S. inflation makes U.S. goods relatively more expensive and foreign goods relatively cheaper. Therefore, U.S.
Correct answer: U.S imports tend to rise, and exports tend to fall- A. dual exchange rate
- B. adjustable pegged exchange rates
- C. managed floating exchange rates
- D. crawling pegged exchange rates
Explanation: A crawling peg adjusts the official exchange-rate parity frequently and by small increments.
Correct answer: crawling pegged exchange rates- A. freely fluctuating exchange rates
- B. adjustable pegged exchange rates
- C. managed floating exchange rates
- D. pegged or fixed exchange rates
Explanation: Industrialized countries generally allow market forces to determine exchange rates while permitting central banks to intervene when…
Correct answer: managed floating exchange rates- A. bad money drives out good
- B. monetary policy can only be effective if it is a long-term policy
- C. controlling one part of the money supply will merely result in that item becoming less important
- D. the money supply must only expand at the rate of growth of real national income
Explanation: Goodhart's Law states that once an economic measure becomes a target, people alter their behaviour so that the measure loses its…
Correct answer: controlling one part of the money supply will merely result in that item becoming less important- A. could either increase or decrease
- B. decrease
- C. increase
- D. remain the same, as long as bank hold no excess reserves
Explanation: With no excess reserves, the simple money multiplier is the reciprocal of the required reserve ratio.
Correct answer: increase- A. is not sufficiently stimulating or contracting the economy at any time
- B. is effective
- C. is stimulating or contracting the economy at the wrong times
- D. is desirable
Explanation: The switchback analogy refers to policy effects arriving after economic conditions have changed because of time lags.
Correct answer: is stimulating or contracting the economy at the wrong times- A. the same as it is for fiscal policy
- B. much shorter than it is for fiscal policy
- C. mush longer than it is for fiscal policy
- D. unrelated to central bank action
Explanation: Monetary policy can generally be changed by a central bank decision, whereas fiscal policy often requires lengthy legislative and…
Correct answer: much shorter than it is for fiscal policy- A. GDP decrease rapidly
- B. GDP remains unchanged
- C. GDP decrease slightly
- D. GDP increase
Explanation: In the usual countercyclical relationship, a growing GDP raises tax receipts and lowers transfer payments, causing the budget deficit to…
Correct answer: GDP increase- A. increase; increase
- B. decrease; increase
- C. increase; decrease
- D. decrease; decrease
Explanation: During expansion, unemployment-related benefits and similar government expenditures fall, while tax revenue rises as incomes and profits…
Correct answer: decrease; increase676. Net taxes are ?
- A. taxes paid by firms and households to the government minus the cost of collecting the taxes
- B. Taxes paid firms and households to the government minus the transfer payments made to firms and household
- C. Taxes paid by firms and households to the government plus transfer payments made to firm and households
- D. government expenditures minus government revenues
Explanation: Net taxes equal taxes collected from households and firms minus transfer payments made to them.
Correct answer: Taxes paid firms and households to the government minus the transfer payments made to firms and household- A. increase the minimum reserve asset ratio.
- B. buy government securities on the open market
- C. raise interest rates
- D. sell government securities on the open market
Explanation: Buying government securities injects reserves into commercial banks, increasing their capacity to lend and lowering interest-rate…
Correct answer: buy government securities on the open market- A. credit rationing
- B. government borrowing drives up interest rates
- C. Bank of England controls on commercial bank lending
- D. what the government borrows cannot be used for private investment
Explanation: Financial crowding out occurs when government borrowing increases the demand for loanable funds, pushing up interest rates and reducing…
Correct answer: government borrowing drives up interest rates- A. Margaret Thatcher
- B. Ronald Reagan
- C. Milton Friedman
- D. John Maynard Keynes
Explanation: Milton Friedman’s monetarist approach gives the money supply a central role in stabilising aggregate demand and the price level.
Correct answer: Milton Friedman680. The multiple by which total deposits can increase for every pound increase in reserves is the ?
- A. Money multiplier
- B. liquidity ratio
- C. bank's line of credit
- D. required reserve ratio
Explanation: The money multiplier is the multiple by which deposits or the money supply can expand from an initial increase in bank reserves.
Correct answer: Money multiplier