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 55 of 75
- A. Price rise; output falls
- B. Price fall; output rises
- C. Price rise; output rises
- D. Price fall; output falls
Explanation: A drought reduces agricultural production and shifts short-run aggregate supply left.
Correct answer: Price rise; output falls- A. Price fall; output rises
- B. Price fall; output falls
- C. Price rise; output fall
- D. Price rise; output rise
Explanation: Higher military spending increases aggregate demand, shifting the AD curve right.
Correct answer: Price rise; output rise- A. sticky-wage theory of the short-run aggregate supply curve
- B. classical dichotomy theory of the short-run aggregate supply curve
- C. misperceptions theory of the short-run aggregate supply curve
- D. sticky-price theory of the short run aggregate supply curve
Explanation: With nominal wages fixed by contracts, a fall in the price level raises firms’ real wage costs, so they reduce production.
Correct answer: sticky-wage theory of the short-run aggregate supply curve- A. lower prices increase the value of money holding and consumers spending increase
- B. lower prices decrease the value of money holding and consumers spending decrease
- C. lower prices reduce money holding increase lending, interest rates fall and investment spending increase
- D. lower prices increase money holding decrease lending, interest rates rise and investment spending falls
Explanation: When prices fall, existing money balances have greater real purchasing power, making households feel wealthier and increasing consumption.
Correct answer: lower prices increase the value of money holding and consumers spending increase- A. The exchange-rate effect
- B. The wealth effect
- C. The classical dichotomy/monetary neutrality effect
- D. The interest-rate effect
Explanation: The exchange-rate, wealth, and interest-rate effects explain why a lower price level raises aggregate quantity demanded.
Correct answer: The classical dichotomy/monetary neutrality effect- A. lower prices increase money holdings decrease lending interest rates rise, and investment spending falls
- B. lower prices increase the value of money holding and consumer spending increases
- C. lower prices decrease the value of money holdings and consumers spending decreases
- D. lower prices reduce money holdings increase lending interest rates fall, and investment spending increase
Explanation: A lower price level reduces the amount of money people wish to hold in nominal terms, lowering the interest rate and encouraging…
Correct answer: lower prices reduce money holdings increase lending interest rates fall, and investment spending increase- A. fail to respond to the adverse supply shock and allow the economy to adjust on its own.
- B. respond to the adverse supply shock by decreasing aggregate demand which lower prices
- C. respond to the adverse supply shock by decreasing short run aggregate supply
- D. respond to the adverse supply shock by increasing aggregate demand, which further raises prices
Explanation: Accommodating an adverse supply shock means expanding aggregate demand, often through monetary or fiscal policy.
Correct answer: respond to the adverse supply shock by increasing aggregate demand, which further raises prices- A. People will reduce their price expectations and the short run aggregate supply will shift right
- B. People will raise their price expectations and aggregate demand will shift left
- C. People will raise their price expectations and the short run aggregate supply will shift left
- D. People will reduce their price expectations and aggregate demand will shift right
Explanation: In a recession, actual output is below its natural level, so wages and price expectations gradually fall.
Correct answer: People will reduce their price expectations and the short run aggregate supply will shift right- A. a decrease in the money supply
- B. a drop-in oil prices
- C. an increase in government spending on military equipment
- D. None of these answers
- E. an increase in price expectations
Explanation: Oil is an important input, so a fall in oil prices lowers firms’ production costs and shifts short-run aggregate supply to the right.
Correct answer: a drop-in oil prices- A. Output rises; prices are unchanged from the initial value
- B. Output and the price level are unchanged from their initial values
- C. Output falls; prices are unchanged from the initial value
- D. Prices fall; output is unchanged from its initial value
Explanation: The drought initially shifts short-run aggregate supply left, but in the long run the economy returns to its natural output.
Correct answer: Output and the price level are unchanged from their initial values- A. Output falls; prices are unchanged from the initial value
- B. Price fall; output is unchanged from its initial value
- C. Output and the price level are unchanged from their initial values
- D. Prices rise; output is unchanged from its initial value
Explanation: Higher military spending shifts aggregate demand right, raising output temporarily.
Correct answer: Prices rise; output is unchanged from its initial value- A. misperceptions theory of the short run aggregate supply curve
- B. classical dichotomy theory of the short run aggregate supply curve
- C. sticky price theory of the short run aggregate supply curve
- D. sticky wage theory of the short run aggregate supply curve
Explanation: The misperceptions theory says suppliers may mistake a fall in the overall price level for a fall in the relative price of their own…
Correct answer: misperceptions theory of the short run aggregate supply curve- A. When the economy is at the natural rate of unemployment
- B. When the economy is at the natural rate of investment
- C. When the economy is at the natural rate of aggregate demand
- D. When there is no no unemployment
Explanation: Natural-rate output is the level produced when the economy operates at the natural rate of unemployment, including frictional and…
Correct answer: When the economy is at the natural rate of unemployment- A. Is vertical because an equal change in all prices and wages leaves output unaffected
- B. is positively sloped because price expectations and wages tend to be fixed is the long run
- C. shifts right when the government raises the minimum wage
- D. shifts left when the natural rate of unemployment falls
Explanation: Long-run aggregate supply is vertical because changes in the overall price level and wages do not alter the economy’s real productive…
Correct answer: Is vertical because an equal change in all prices and wages leaves output unaffected- A. shift the short-run aggregate supply curve to the left
- B. shift the aggregate demand curve to the right
- C. shift the short-run aggregate supply curve to the right
- D. shift the aggregate demand curve to the left
Explanation: Greater consumer optimism encourages households to increase consumption at each price level, shifting aggregate demand to the right.
Correct answer: shift the aggregate demand curve to the right- A. All of these answers shift the long-run aggregate supply curve
- B. An increase in the available capital
- C. An increase in the available labour
- D. An increase in price expectations
Explanation: An increase in price expectations affects short-run aggregate supply, not productive capacity, so it does not shift long-run aggregate…
Correct answer: An increase in price expectations- A. None of these answers
- B. A depression is a mild recession
- C. A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate together
- D. A recession is when output rises above the natural rate of output
Explanation: Macroeconomic indicators such as income, spending and output generally move together, so several of them can measure economic…
Correct answer: A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate together- A. balance of payments
- B. capital account
- C. current account
- D. balance of trade
Explanation: The balance of trade measures the difference between merchandise, or goods, exports and merchandise imports.
Correct answer: balance of trade- A. credit transactions
- B. debit transactions
- C. unilateral transfers
- D. statistical discrepancy
Explanation: A statistical discrepancy is included when recorded credits and debits do not exactly balance because of errors, omissions or timing…
Correct answer: statistical discrepancy- A. exports and imports of financial assets
- B. the current account plus capital account
- C. the net export of goods and services
- D. the value of merchandise exports minus imports
Explanation: The balance of trade is specifically the value of merchandise exports minus merchandise imports.
Correct answer: the value of merchandise exports minus imports