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 36 of 75
- A. decrease; depreciate
- B. decrease; appreciate
- C. increase; depreciate
- D. increase; appreciate
Explanation: A tight monetary policy raises U.S. interest rates relative to Europe, attracting foreign capital and increasing demand for dollars.
Correct answer: increase; appreciate- A. upward sloping
- B. downward sloping
- C. vertical
- D. any of the above
Explanation: In the usual foreign-exchange market, a higher value of foreign currency encourages foreigners to supply more of it in exchange for…
Correct answer: upward sloping- A. GDP usually decreases before it increases after a currency depreciation
- B. the trade balance usually gets worse before it improves after a currency depreciation
- C. the trade balance usually gets better before it gets worse after a currency appreciation
- D. GDP usually decreases before it increases after a currency appreciation
Explanation: The J-curve describes the trade balance after a currency depreciation: it often worsens initially because import prices rise before…
Correct answer: the trade balance usually gets worse before it improves after a currency depreciation- A. depreciate under a system of fixed exchange rates
- B. depreciate under a system of floating exchange rates
- C. appreciate under a system of floating exchange rates
- D. appreciate under a system of floating fixed rates
Explanation: Relatively low interest rates reduce the incentive for foreign investors to hold the country’s assets, causing capital outflow and lower…
Correct answer: depreciate under a system of floating exchange rates- A. price feedback theory
- B. trade feedback theory
- C. J-curve theory
- D. purchasing power parity theory
Explanation: Purchasing power parity links exchange rates to relative price levels and inflation rates, implying that a currency tends to adjust to…
Correct answer: purchasing power parity theory- A. a depreciation of a currency
- B. a strengthening of a currency
- C. a floating of a currency
- D. an appreciation of a currency
Explanation: A fall in one currency’s value relative to another is depreciation. Appreciation or strengthening means the currency has gained value…
Correct answer: a depreciation of a currency- A. tends to lead to an appreciation of a nation's currency
- B. tends to lead to a depreciation of a nation's currency
- C. usually has no effect on a currency's exchange value
- D. tends to lead to a depreciation of the currencies of other nations
Explanation: Expansionary monetary policy lowers interest rates, which can encourage capital outflow and reduce foreign demand for the currency.
Correct answer: tends to lead to a depreciation of a nation's currency- A. adopted a new system of fixed exchange rates
- B. gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand
- C. adopted single internationally accepted currency whose use is limited to international transactions
- D. returned to the gold standard
Explanation: The Bretton Woods system began to break down in 1971, after which many countries moved away from formally fixed rates and allowed exchange…
Correct answer: gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand- A. hard currency
- B. foreign exchange
- C. reserve currencies
- D. near monies
Explanation: Foreign exchange means foreign currencies, or claims payable in those currencies, traded against the domestic currency.
Correct answer: foreign exchange- A. attempt to profit by trading on expectations about future currency prices
- B. bear risk as they attempt to ____ beat the market||
- C. attempt to buy currency at a low price and later resell that currency at a higher price
- D. Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit
Explanation: Speculators accept exchange-rate risk while trying to profit from expected price movements.
Correct answer: Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit- A. reflects only the influences of merchandise or real trade on the dollar's exchange value
- B. reflects only transactions in the currency futures market
- C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
- D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?
Explanation: The real effective exchange rate is a trade-weighted average of a currency against those of major trading partners, adjusted for relative…
Correct answer: is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?- A. currency arbitrage
- B. interest arbitrage
- C. short positions
- D. long positions
Explanation: Interest arbitrage involves shifting funds toward foreign assets or currencies offering higher interest returns, while considering…
Correct answer: interest arbitrage- A. his desire to open a bank account in Japan
- B. his desire to purchase an automobile produced domestically
- C. his desire to travel to Europe
- D. his desire to purchase Treasury bills issued by the British government
Explanation: Buying a domestically produced automobile normally requires domestic currency, so it does not create demand for foreign exchange.
Correct answer: his desire to purchase an automobile produced domestically- A. Norway's export goods become more expensive to Norway's residents
- B. Norway's exports goods become cheaper to Sweden's residents
- C. Sweden's export goods become cheaper to Norway's residents
- D. Sweden's export goods become cheaper to Sweden's residents
Explanation: When the Swedish currency depreciates against Norway's, Swedish goods become cheaper when priced in Norwegian currency.
Correct answer: Sweden's export goods become cheaper to Norway's residents- A. forward discount
- B. forward premium
- C. forward spread
- D. None of these
Explanation: A franc priced at $0.42 in the forward market versus $0.48 in the spot market has a lower future dollar price.
Correct answer: forward discount- A. differential actions
- B. cash transaction
- C. arbitrage
- D. forward transactions
Explanation: Arbitrage is the simultaneous or near-simultaneous exploitation of price or yield differences for a riskless profit after transaction…
Correct answer: arbitrage- A. 2.0
- B. 1.999
- C. 2.323
- D. 2.222
Explanation: If one franc costs $0.45, one dollar buys 1 divided by 0.45, or approximately 2.222 francs.
Correct answer: 2.222- A. Swap
- B. foreign exchange arbitrage
- C. foreign exchange option
- D. futures market contract
Explanation: A foreign exchange option gives its holder the right, but not the obligation, to buy or sell currency at a specified rate.
Correct answer: foreign exchange option- A. hedging
- B. speculation
- C. government regulation
- D. arbitrage
Explanation: Arbitrageurs buy a currency where it is relatively cheap and sell it where it is dear, earning profit until the price difference…
Correct answer: arbitrage- A. upward
- B. vertical
- C. downward
- D. horizontal
Explanation: With dollars per yen on the vertical axis, a higher exchange rate makes yen more expensive in dollar terms.
Correct answer: downward