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 46 of 75
- A. demand for money, interest rate
- B. interest rate equilibrium money supply
- C. demand for money equilibrium money supply
- D. interest rate, demand for money
Explanation: When a central bank fixes the interest rate, it must allow the money supply to adjust to whatever level is needed to maintain that rate.
Correct answer: interest rate equilibrium money supply- A. lender of less resort
- B. financial intermediation
- C. Open Market operations
- D. Financial regulation
Explanation: Open-market operations are central-bank purchases or sales of government securities.
Correct answer: Open Market operations- A. narrow, banks, building societies
- B. wide, banks insurance companies
- C. Narrow, banks insurance companies
- D. Wide, banks building societies
Explanation: M4 is a broad or wide measure of money because it includes liquid deposits held with banks and building societies.
Correct answer: Wide, banks building societies904. When interest rate rise, other things equal, we can expect the quantity of real money holding to ?
- A. fall
- B. increase
- C. not change
- D. None of these
Explanation: A higher interest rate raises the opportunity cost of holding non-interest-bearing money, so people reduce their real money balances…
Correct answer: fall- A. Unchanged
- B. Larger
- C. Smaller
- D. Unstable
Explanation: The money multiplier rises when banks and the public hold smaller cash reserves, because a larger fraction of deposits is available for…
Correct answer: Larger- A. printing it
- B. issuing debit cards
- C. accepting cheques
- D. lending out part of their deposits
Explanation: Commercial banks create deposit money when they lend part of their deposits, because the loan is credited to a borrower's account and…
Correct answer: lending out part of their deposits- A. money market for the given level of the money supply
- B. money market for different combinations of interest rates and output
- C. goods market for the given level of government spending
- D. goods market for the given interest rate
Explanation: Every point on the LM curve shows money-market equilibrium for a particular combination of income or output and the interest rate, given…
Correct answer: money market for different combinations of interest rates and output- A. money supply curve
- B. LM curve
- C. money demand curve
- D. IS curve
Explanation: The LM curve represents money-market equilibrium and normally slopes upward: higher output increases money demand, requiring a higher…
Correct answer: LM curve- A. goods market for the given interest rate
- B. goods market for the given level of government spending
- C. money market for the given level of the money supply
- D. money market for the given value of aggregate output
Explanation: Each point on the IS curve represents equilibrium in the goods market for a particular interest rate and corresponding level of output.
Correct answer: goods market for the given interest rate- A. incomes
- B. overseas investment
- C. imports
- D. interest rates
Explanation: Expansionary government spending can increase demand for loanable funds, pushing the interest rate upward and reducing private investment.
Correct answer: interest rates- A. fiscal drag
- B. investment blight
- C. crowding-out
- D. the Thatcher effects
Explanation: Crowding out occurs when government borrowing or spending raises interest rates or absorbs available funds, causing private investment to…
Correct answer: crowding-out- A. a hyperinflation
- B. a depression
- C. stagflation
- D. a recession
Explanation: On the steep part of the aggregate-supply curve, maintaining a constant interest rate may require the central bank to keep expanding the…
Correct answer: a hyperinflation- A. both monetary and fiscal policy are ineffective
- B. monetary policy is effective but fiscal policy is ineffective
- C. monetary policy is ineffective but fiscal policy is effective
- D. both monetary and fiscal policy are effective
Explanation: A vertical investment-demand curve means investment does not respond to interest-rate changes, so monetary policy has little effect…
Correct answer: monetary policy is ineffective but fiscal policy is effective- A. a reduction in the taxes banks pay on their profits.
- B. an increase in the required reserve ratio
- C. an increase in the discount rate
- D. the Central bank buying government securities in the open market
Explanation: When the central bank buys government securities, it injects reserves into the banking system, expanding the money supply and lowering…
Correct answer: the Central bank buying government securities in the open market- A. the money and labor markets
- B. the goods and labor markets
- C. the goods market
- D. the money markets
Explanation: The money market equates money demand with money supply, and their intersection determines the equilibrium interest rate.
Correct answer: the money markets- A. the goods and labor markets.
- B. the goods market
- C. the money markets
- D. the money and labor market
Explanation: The goods market determines equilibrium output where planned expenditure equals actual output.
Correct answer: the goods market- A. a positive relationship between the interest rate and the quantity of money demanded
- B. a negative relationship between the price level and the quantity of money demanded
- C. a negative relationship between the level of aggregate output and the quantity of money demanded
- D. a negative relationship between the interest rate and the quantity of money demanded
Explanation: The speculative demand for money varies inversely with the interest rate: people prefer holding money when rates are low and bonds when…
Correct answer: a negative relationship between the interest rate and the quantity of money demanded- A. Transactions motive
- B. precautionary motive
- C. profit motive
- D. speculation motive
Explanation: The speculation motive involves choosing between money and bonds based on expected interest-rate movements.
Correct answer: speculation motive- A. A sale of government securities by the central bank
- B. An increase in the level of aggregate output
- C. An increase in the discount rate
- D. A decrease in the price level
Explanation: A lower price level increases real money balances, shifting the money-market balance toward a lower interest rate.
Correct answer: A decrease in the price level- A. How much cash do you wish you could have?
- B. How much wealth would you like?
- C. How much income would you like to earn?
- D. What proportion of your financial assets do you want to hold in non-interest-bearing forms
Explanation: Demand for money means the share of financial wealth people prefer to keep in liquid, non-interest-bearing forms such as currency and…
Correct answer: What proportion of your financial assets do you want to hold in non-interest-bearing forms