Free Macroeconomics MCQs with Answers

• A. boom
• B. slump
• C. recovery
• D. acceleration

Explanation: The usual business-cycle phases are boom, slump or recession, trough, and recovery.

• A. trend path of output
• B. boom
• C. recession
• D. short-run fluctuations in output

Explanation: Business cycles are temporary expansions and contractions in economic activity around the economy's long-term trend path of output.

• A. saving, investment
• B. capital per person, productivity
• C. labor growth, output
• D. investment capital per person

Explanation: In the neoclassical growth model, steady-state investment is just enough to equip the growing labour force while keeping capital per…

• A. the value of leisure
• B. Externalities
• C. Untraded goods
• D. Change in the distribution of income
• E. All of the above

Explanation: GDP per head records market production but omits or poorly reflects leisure, external costs and benefits, non-market or untraded goods…

• A. Imposing higher taxes on capital
• B. encouraging more labour intensive work to reduce unemployment
• C. reducing spending in education
• D. encouraging private investment

Explanation: Private investment can raise productivity by increasing the capital available per worker and encouraging improved technology and…

• A. total exploitation
• B. labour/capital productivity
• C. total factor productivity
• D. total productivity

Explanation: Total factor productivity measures the efficiency with which the combined inputs of labour and capital produce output.

• A. endogenous
• B. exogenous
• C. beta
• D. convergence

Explanation: Endogenous growth theory explains long-run growth through factors within the economic system, such as technology, education, institutions…

• A. Steady state growth path
• B. Steady state invention rate
• C. Steady state level of output
• D. Unsteady state growth path

Explanation: A steady-state growth path is the path of output and capital generated by a given saving rate alongside technological progress, with key…

• A. economic growth is Zero
• B. All investment is used in the manufacturing sector
• C. Economic growth is growing
• D. All investment is used to maintain the existing capital stock at its current level

Explanation: In a steady-state or long-run equilibrium, gross investment is just sufficient to replace depreciation and maintain the existing capital…

• A. increase government spending
• B. reduce taxation
• C. save more
• D. increase personal consumption

Explanation: Higher saving increases the funds available for investment in capital, which expands productive capacity and supports economic growth.

• A. All countries will eventually join the EEC
• B. Poorer countries have higher capital/labour ratios than richer countries.
• C. The gap between countries GDP per head will widen
• D. Poorer less developed countries will catch up with richer ones.

Explanation: GDP convergence means poorer economies grow faster and gradually catch up with richer economies in GDP per person.

• A. imperfect labor markets
• B. rational expectations
• C. intertertemporal decisions of households, firms and government
• D. sun spot cycles

Explanation: Real business cycle theory links output fluctuations to real factors and the intertemporal decisions of households, firms, and…

• A. private sector imports and exports
• B. economic policy
• C. the duration of compulsory education
• D. labor supply changes

Explanation: Changes in the duration of compulsory education are not a normal international transmission channel for business cycles.

• A. potential output
• B. actual output
• C. real output
• D. international trade

Explanation: Real business cycle theory attributes fluctuations to real shocks that change productive capacity, so cycles are viewed as movements in…

• A. aggregate supply is
• B. aggregate demand is
• C. potential output is
• D. real variables are

Explanation: RBC theory explains short-term fluctuations mainly through real supply-side shocks and therefore gives aggregate demand little importance.

• A. sun spot theory
• B. multiplier accelerator model
• C. Solow theory
• D. New classical theory

Explanation: The multiplier-accelerator model combines the consumption multiplier with investment responses to changes in output, producing cyclical…

• A. capital-widening technical innovation
• B. capital-widening Catch-up in technology
• C. capital-deepening technical innovation
• D. capital-deepening, catch-up in technology

Explanation: Capital deepening is easier when capital per worker is low because the initial returns to added capital are relatively high.

• A. Population size, x-efficiency
• B. Population age distribution, education
• C. Population growth technical progress
• D. Population growth education

Explanation: Long-run growth depends on increases in the labour force through population growth and on technical progress that raises productivity.

• A. a higher growth rates
• B. a fluctuating growth rate
• C. a fluctuating growth rates
• D. no change in the growth rate

Explanation: In the neoclassical growth model, a higher saving rate raises the steady-state level of output per worker and causes temporary…

• A. increasing the use of labor increasing the use of land
• B. increasing the use of capital increasing the use of labour
• C. increasing the use of land increasing the use of capital
• D. increasing the use of all inputs, technical advances

Explanation: Production can rise through greater use of all factor inputs, such as labour, land and capital, or through technological progress that…