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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- A. raises the value of the multiplier
- B. has no impact on the value of the multiplier?
- C. rarely occurs because the MPC is set by congressional legislation
- D. lowers the value of the multiplier
Explanation: The simple spending multiplier is 1 divided by 1 minus the MPC, so a higher MPC produces a larger multiplier.
Correct answer: raises the value of the multiplier- A. aggregate demand to the right
- B. aggregate demand to the left
- C. aggregate supply to the right
- D. aggregate supply to the left
Explanation: Government spending is a component of aggregate demand, so its immediate effect is to increase aggregate demand and shift its curve to the…
Correct answer: aggregate demand to the right- A. The wealth effect
- B. None of these answers
- C. The exchange-rate effect
- D. The fiscal effect
- E. The interest-rate effect
Explanation: The interest-rate effect is the main reason aggregate demand slopes downward in the Eurozone: a lower price level reduces money demand…
Correct answer: The interest-rate effect- A. None of these answers
- B. decrease the quantity demanded of money
- C. increase the quantity demanded of money
- D. decreases the demand for money
- E. increases the demand for money
Explanation: A higher interest rate raises the opportunity cost of holding money, so people choose to hold less money.
Correct answer: decrease the quantity demanded of money- A. The money supply shifts right prices fall spending increases and the aggregate demand curve shifts right
- B. The money supply shifts right the interest rate rises investment decreases and the aggregate demand curve shifts left
- C. The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
- D. The money supply shifts right, prices rise, demand curve shifts left
Explanation: An increase in money supply lowers the interest rate, which encourages investment and other interest-sensitive spending.
Correct answer: The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right- A. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy
- B. None of these answers are true
- C. Long lags enhance the ability of policy makers to fine tune the economy
- D. When policy makers implement activist stabilization policies there is a significant risk that their policies may actually have a destabilizing effect
Explanation: Long policy lags make fine-tuning harder because the economy may change before the policy takes effect, potentially causing…
Correct answer: Long lags enhance the ability of policy makers to fine tune the economy- A. The multiplier effects
- B. supply side economics
- C. None of these answers
- D. The crowding out effect
Explanation: The multiplier effect occurs when an initial increase in government purchases raises someone's income, leading to further consumption and…
Correct answer: The multiplier effects- A. Most economists believe that in the short run the greatest impact of a change in taxes is on aggregate supply, not aggregate demand
- B. An increase in taxes shifts the aggregate demand curve to the right
- C. A decrease in taxes shifts the aggregate supply curve to the left
- D. A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.
Explanation: A permanent tax change usually affects consumption more than a temporary change because households adjust their spending based on expected…
Correct answer: A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.- A. decrease government spending Which the shifts the aggregate demand curve to the left
- B. decrease taxes, which shifts the aggregate demand curve to the right
- C. decrease taxes, which shifts the aggregate demand curve to the left
- D. decrease government spending which shifts the aggregate demand curve to the right
Explanation: When output is above its natural rate because of excessive spending, contractionary policy is appropriate.
Correct answer: decrease government spending Which the shifts the aggregate demand curve to the left- A. 4
- B. 7.5
- C. 5
- D. 0.75
Explanation: The simple spending multiplier is calculated as 1 divided by 1 minus MPC: 1/(1 - 0.75) = 4.
Correct answer: 4- A. Increase government spending and decrease taxes
- B. decrease the money supply
- C. decrease government spending and increase taxes
- D. decrease interest rates
Explanation: Pessimism reduces aggregate demand, so the Federal Reserve should use expansionary monetary policy by lowering interest rates.
Correct answer: decrease interest rates- A. shift the aggregate supply curve to the right
- B. shift the aggregate supply curve to the left
- C. shift the aggregate demand curve to the left
- D. shift the aggregate demand curve to the right
Explanation: An increased money supply lowers interest rates and raises interest-sensitive spending, producing an initial rightward shift of aggregate…
Correct answer: shift the aggregate demand curve to the right- A. shifts money demand to the right and increases the interest rate
- B. None of these answers
- C. shifts money demand to the right and decreases the interest rate
- D. shifts money demand to the left and increases the interest rate
- E. shifts money demand to the left and decrease the interest rate
Explanation: A higher price level increases the amount of money needed for transactions, shifting money demand rightward.
Correct answer: shifts money demand to the right and increases the interest rate- A. aggregate supply and aggregate demand
- B. the supply and demand for loanable funds
- C. the supply and demand for money
- D. the supply and demand for labor
Explanation: Keynes’s liquidity-preference theory explains the interest rate through equilibrium between the demand for money and the money supply.
Correct answer: the supply and demand for money- A. market orientated economists
- B. left-wing theorists
- C. Keynesian
- D. New-Keynesian
Explanation: Market-oriented economists generally favour wage and tax flexibility and reduced benefits to improve labour-market incentives in depressed…
Correct answer: market orientated economists- A. reduce poverty
- B. reduce unemployment
- C. weaken the power of trade unions
- D. help small businesses
Explanation: New classical reasoning treats generous benefits as potentially reducing the incentive to accept work or search for jobs.
Correct answer: reduce unemployment- A. initially increase and then decrease
- B. decrease continuously
- C. rise continuously
- D. initially decrease and then increase
Explanation: The Laffer curve reflects a trade-off: at low tax rates, raising rates increases revenue, but beyond the revenue-maximising rate, higher…
Correct answer: initially increase and then decrease- A. supply side economists
- B. neo-Keynesian economists
- C. rational -expectations economists
- D. New classical economists
Explanation: Supply-side economists focus on how high taxes and regulation weaken incentives to work, save and invest, thereby reducing productive…
Correct answer: supply side economists- A. the level of national income
- B. the level of aggregate demand
- C. the rate of change of national income
- D. expectations
Explanation: The accelerator principle links induced investment to changes in output or national income, not merely to its existing level.
Correct answer: the rate of change of national income- A. an increase in income and an increase in overall saving
- B. a decrease in income and an overall decrease in saving
- C. a decrease in income but an increase in saving
- D. an increase in income but no overall change in saving
Explanation: If everyone tries to save more, consumption and aggregate demand fall, reducing income and output; this fall in income can cause total…
Correct answer: a decrease in income and an overall decrease in saving