Free Macroeconomics MCQs with Answers

• A. Public investment in education
• B. Innovation and the application of new technology
• C. The phase of the lunar cycle
• D. Private investment in new physical caital

Explanation: Education, innovation, technology and investment in physical capital can all raise productivity.

• A. building more retail outlets
• B. encouraging risk-taking
• C. encouraging innovation
• D. encouraging R & D

Explanation: Productivity policies focus on skills, innovation, research and development, investment and incentives for risk-taking.

• A. workers
• B. non-slackers
• C. diligent rate
• D. participation rate

Explanation: The labour-force participation rate is the percentage of the working-age population that is economically active, including both employed…

• A. gets the highest rate of interest
• B. maximizes the level of long-run investment
• C. maximizes the level of long-run consumption
• D. maximizes human capital

Explanation: In the Solow growth model, the golden-rule saving rate produces the highest sustainable level of consumption per worker in the long run.

• A. An increase in the quantity of labor and capital
• B. An increase in labor productivity
• C. An increase in the money supply
• D. An increase in technology

Explanation: Long-run growth is driven by more labour and capital, higher productivity and technological progress.

• A. People want less crime
• B. People want to be happier
• C. People want a better environment
• D. People want higher incomes and more consumer goods.

Explanation: Economic growth raises productive capacity, allowing higher real incomes and greater availability of goods and services.

• A. a nominal exchange rate, floated
• B. a real exchange rate, pegged
• C. a purchasing power parity, pegged
• D. a real exchange rate, floated

Explanation: Under the Exchange Rate Mechanism, participating currencies were kept at agreed nominal rates against one another.

• A. appreciate
• B. depreciate
• C. revalue
• D. be in short supply

Explanation: Higher domestic inflation makes the country’s goods relatively expensive, reducing demand for its currency and increasing demand for…

• A. depreciation
• B. appreciation
• C. fall
• D. devaluation

Explanation: Expectations of higher interest rates attract foreign capital because investors seek higher returns on assets denominated in that…

• A. enhances
• B. undermines
• C. encourages
• D. facilitates

Explanation: With perfect capital mobility, attempts to use monetary policy alter interest rates and trigger large capital flows that put pressure on…

• A. increased
• B. unaffected
• C. reduced
• D. None of these

Explanation: When the central bank buys domestic currency, it pays for that purchase with foreign reserves and removes domestic currency from…

• A. current account
• B. interest rate
• C. tax
• D. price

Explanation: International investors move funds toward countries offering relatively higher returns, so cross-border capital flows respond strongly to…

• A. increase
• B. reduce
• C. do nothing to
• D. None of the above

Explanation: A rise in the real exchange rate is generally treated as a real appreciation, making domestic goods more expensive relative to foreign…

• A. reduce its stock of foreign assets
• B. increase its stock of foreign assets
• C. increases its savings
• D. increases its foreign currency reserves

Explanation: A current-account deficit means the country is spending more abroad than it earns from current transactions and must finance the gap.

• A. rise
• B. fall
• C. not change
• D. fluctuate

Explanation: Greater British demand for French francs increases the supply of pounds in the foreign-exchange market.

• A. falls; falls; falls; surplus
• B. is static; low; rises; deficit
• C. falls; rises; falls; surplus
• D. rises; falls; rises; deficit

Explanation: A recession normally reduces aggregate demand, raises unemployment and lowers inflationary pressure.

• A. depreciate
• B. not be affected
• C. fluctuate more than it would do therwise
• D. appreciate

Explanation: A US recovery driven by higher military spending raises US income and likely increases demand for imports, including UK goods, causing…

• A. depreciate
• B. not be affected
• C. fluctuate more than it would do therwise
• D. appreciate

Explanation: Expected selling of the pound increases its supply in the foreign-exchange market, while reduced demand may also occur.

• A. balance of payments on current account
• B. visible trade balance
• C. balance of trade
• D. balance of payments

Explanation: The current account covers trade in goods and services, investment income, and current transfers such as remittances.

• A. fiscal policies
• B. monetary policies
• C. supply-side policies
• D. incomes policies

Explanation: Monetary policy uses instruments such as interest rates, money supply, and open-market operations to influence economic activity.