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 38 of 75
- A. An increase in costs
- B. A reduction in interest rate
- C. A reduction in government spending
- D. An outward shift in aggregate supply
Explanation: A lower interest rate encourages borrowing and spending, increasing aggregate demand and potentially causing demand-pull inflation.
Correct answer: A reduction in interest rate- A. neither borrowers nor lenders will gain because the nominal interest rate has been fixed by contract
- B. None of these answers
- C. borrowers will gain at the expense of lenders
- D. lenders will gain at the expense of borrowers
Explanation: With the nominal rate fixed, lower-than-expected inflation makes the real interest rate higher than anticipated.
Correct answer: lenders will gain at the expense of borrowers- A. The nominal rate of interest is 15 percent and the inflation rate is 14 percent
- B. The nominal rate of interest is 20 percent and the inflation rate is 25 percent
- C. The nominal rate of interest is 12 percent and the inflation rate is 9 percent
- D. The nominal rate of interest is 5 percent and the inflation rate are 1 percent
Explanation: A lender prefers the highest real return, approximated by the nominal rate minus inflation.
Correct answer: The nominal rate of interest is 5 percent and the inflation rate are 1 percent- A. 4 percent
- B. 10 percent
- C. -4 percent
- D. 3 percent
- E. 21 percent
Explanation: Using the approximate Fisher equation, subtract inflation from the nominal rate: 7% minus 3% equals a real interest rate of 4%.
Correct answer: 4 percent- A. consumer production
- B. Products purchased by the typical consumer
- C. raw materials purchased by firms
- D. total current production
- E. none of these answers
Explanation: The CPI tracks the cost of a fixed basket representing goods and services bought by a typical consumer.
Correct answer: Products purchased by the typical consumer746. In 1989, the CPI was 124.0 in 1990, it was 130.7 What was the rate of inflation over this period ?
- A. 5.4 percent
- B. 30.7 percent
- C. You can't tell without knowing the base year
- D. 5.1 percent
Explanation: Inflation is calculated as the change in CPI divided by the earlier CPI: (130.7 − 124.0) ÷ 124.0 × 100, which is about 5.4%.
Correct answer: 5.4 percent- A. Aggregate supply is perfectly elastic
- B. Aggregate supply is Perfectly inelastic
- C. Aggregate supply is unit elastic
- D. Aggregate supply is relatively elastic
Explanation: When aggregate supply is perfectly inelastic, output cannot expand in response to higher aggregate demand, so the entire pressure appears…
Correct answer: Aggregate supply is Perfectly inelastic- A. none of these answers
- B. Workers will gain at the expense of firms
- C. neither workers nor firms will gain because the increase in wages in fixed in the labor agreement
- D. firms will gain at the expense of workers.
Explanation: When actual inflation exceeds the rate built into the wage agreement, workers' real wages are lower than expected while firms pay the…
Correct answer: firms will gain at the expense of workers.- A. The nominal rate of interest is 12 percent and the inflation rate is 9 percent
- B. The nominal rate of interest is 20 percent and the inflation rate is 25 percent
- C. The nominal rate of interest is 5 percent and the inflation rate is 1 percent
- D. The nominal rate of interest is 15 percent and the inflation rate is 14 percent
Explanation: Borrowers benefit when inflation exceeds the nominal interest rate because the real interest rate becomes negative.
Correct answer: The nominal rate of interest is 20 percent and the inflation rate is 25 percent- A. 3/8 percent
- B. 5 percent
- C. 11 percent
- D. 24 percent
Explanation: Using the Fisher relationship, nominal interest is approximately the real interest rate plus expected inflation: 3% + 8% = 11%.
Correct answer: 11 percent- A. fallen
- B. You can't tell without knowing the base year
- C. risen
- D. stayed the same
Explanation: Income increased by about 63%, while the CPI increased by about 39%, so purchasing power and real income rose.
Correct answer: risen- A. none of these answers
- B. substitution bias
- C. base year bias
- D. bias due to unmeasured quality change
- E. bias due to the introduction of new goods.
Explanation: A fixed consumption basket does not fully reflect consumers switching from costlier apples to oranges, so the CPI may overstate the rise…
Correct answer: substitution bias- A. An increase in the price of BMWs produced in Germany and sold in the Pakistan
- B. An increase in the price of Peugeots produced in the Pakistan
- C. An increase in the price of helicopters purchased by the Pak Navy.
- D. An increased in the Price of domestically produced armoured vehicles sold exclusively to Iran
Explanation: Imported BMWs bought by consumers enter Pakistan’s CPI basket, but imports are excluded from GDP and therefore from the GDP deflator.
Correct answer: An increase in the price of BMWs produced in Germany and sold in the Pakistan- A. Employed
- B. Not in the labour force
- C. A discouraged worker
- D. Unemployed
Explanation: A person who stays home to provide household care is neither working for pay nor actively seeking work.
Correct answer: Not in the labour force- A. Helps the economy move on the to Production Possibility Frontier
- B. Helps shift the economy's Production Possibility Frontier outwards
- C. Helps the economy move along its Production Possibility Frontier
- D. Helps the economy move inside the Production Possibility Frontier
Explanation: Reducing involuntary unemployment allows currently idle resources to be used, moving the economy from inside its production possibility…
Correct answer: Helps the economy move on the to Production Possibility Frontier- A. Not in the labour force
- B. Not in the adult population
- C. Unemployed
- D. Employed
Explanation: A person who wants work but has stopped searching is a discouraged worker.
Correct answer: Not in the labour force- A. The natural rate of unemployment
- B. cyclical unemployment
- C. efficiency wage unemployment
- D. frictional unemployment
Explanation: The natural rate of unemployment is the normal level of unemployment when the economy is operating without cyclical unemployment.
Correct answer: The natural rate of unemployment- A. The upward accelerator
- B. The downward multiplier
- C. The upward PPF
- D. The downward mpc
Explanation: A fall in demand can reduce production and employment, lowering incomes and spending and causing a further fall in demand.
Correct answer: The downward multiplier- A. ceiling, stock building
- B. ceiling, capital prices
- C. floor, output
- D. floor, the capital-output ratio
Explanation: Gross investment cannot be negative, so investment can fall only to zero rather than becoming negative.
Correct answer: floor, output- A. consumption expected future profits
- B. investment, interest rates
- C. investment expected future profits
- D. stock building interest rates
Explanation: In the multiplier-accelerator model, investment responds to expected future profitability, while changes in consumption and income…
Correct answer: investment expected future profits