Free Macroeconomics MCQs with Answers

• A. is less than
• B. equals
• C. is greater than
• D. fluctuates around

Explanation: In short-run equilibrium, firms produce exactly what buyers plan to purchase, so aggregate demand equals actual output.

• A. tax evasion
• B. poor statistics
• C. the lags between statistical collection and publication
• D. smuggling

Explanation: The hidden economy includes income deliberately kept out of official records, commonly to evade taxes.

• A. including non-market activities
• B. adjusted for inflation
• C. including externalities
• D. including tax evasion

Explanation: Real GNP values the goods and services produced by a country's nationals at constant prices, removing the effect of inflation.

• A. equal
• B. be less than
• C. be greater than
• D. be less or greater than

Explanation: In a circular-flow equilibrium, leakages such as saving, taxation and imports are exactly offset by injections such as investment…

• A. investment, savings, government expenditure
• B. savings, taxes net of subsidies imports
• C. consumption investment government expenditure
• D. consumption taxes imports

Explanation: Leakages remove spending from the circular flow: saving, taxes net of subsidies, and imports.

• A. 3>2>1
• B. 3=2=1
• C. 3<2<1
• D. any measure can be larger or smaller than any other

Explanation: Total value added, expenditure on final goods, and factor income are three methods of measuring national income.

• A. resources and efficiency
• B. money and efficiency
• C. money and luck
• D. resources and a good climate

Explanation: Economic growth depends chiefly on increasing available resources, such as labour and capital, and using them more efficiently through…

• A. legal transactions
• B. part of the rail network
• C. legal transactions not declared for tax and illegal activities
• D. the water distribution system

Explanation: The underground economy covers both lawful transactions hidden from tax authorities and unlawful activities.

• A. Injections = withdrawals
• B. There is a Bank Holiday
• C. Injections withdrawals
• D. None of these

Explanation: Circular-flow equilibrium requires total injections, including investment and government spending, to equal total withdrawals, including…

• A. consumption savings and taxes
• B. savings government expenditure and imports
• C. savings taxes and exports
• D. savings taxes and imports

Explanation: Withdrawals, or leakages, from the circular flow are savings, taxes, and imports.

• A. landlords
• B. peasants
• C. The army
• D. politicians

Explanation: In classical distribution theory, landlords were expected to gain from growth because expanding production and population raise the demand…

• A. three years
• B. six months
• C. a year
• D. two years

Explanation: The conventional rule defines a recession as a fall in national output for at least two consecutive quarters, which is approximately six…

• A. wholesale price index (WPI)
• B. GDP deflator
• C. Producer price index (PPI)
• D. consumer price index

Explanation: The consumer price index measures changes in the prices of a representative basket of goods and services bought by households, so it is…

• A. unemployment rate
• B. labor force rate
• C. employment rate
• D. unemployment population ratio

Explanation: The unemployment rate is calculated as unemployed people divided by the labour force, multiplied by 100.

• A. income-expenditures diagram
• B. aggregate demand-aggregate supply diagram
• C. circular flow diagram
• D. income-price diagram

Explanation: A circular flow diagram traces income received and payments made among households, firms, government, and the foreign sector.

• A. reduces, reduces
• B. reduces, increase
• C. increase, reduces
• D. increases, increases

Explanation: Higher export demand is an injection that raises aggregate demand and output.

• A. increase, increase
• B. falls, increase
• C. falls, fall
• D. increase, fall

Explanation: When income falls, households generally buy fewer imports, so import spending falls and the trade balance tends to improve.

• A. AD = C + I
• B. AD = C + I + G
• C. AD = C + I + G + X + Z
• D. AD = C + I + G + X - Z

Explanation: For an open economy with government, aggregate demand equals consumption plus investment, government spending, and exports, minus imports…

• A. move into surplus
• B. move into deficit
• C. remain unchanged
• D. None of the above above

Explanation: When income rises at a fixed tax rate, tax revenue increases while government spending is initially unchanged.

• A. C + 1
• B. C + G
• C. I + G
• D. C + 1 + G

Explanation: Without a foreign sector, aggregate demand consists of consumption, investment and government spending, written as C + I + G.