Free Macroeconomics MCQs with Answers

• A. 2
• B. 1/2
• C. 0.2
• D. 20

Explanation: The expenditure multiplier is 1/(1 − MPC), so with MPC of 0.5 it equals 1/0.5 = 2.

• A. consumption income
• B. investment output
• C. savings investment
• D. output aggregate demand

Explanation: The multiplier measures how much total output changes in response to a change in aggregate demand or autonomous spending.

• A. households to save more
• B. firms to produce less
• C. firms to produce more
• D. the MPC to change

Explanation: If desired spending exceeds current income, firms experience an unintended fall in inventories.

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

Explanation: A positive slope means consumption rises as income rises, while a slope below one means consumption rises by less than the increase in…

• A. personal saving and private investment
• B. personal saving and personal consumption
• C. personal consumption and private investment
• D. None of the above

Explanation: In an economy with no government or foreign trade, aggregate demand has only household consumption and private investment. Thus it is C + I.

• A. consumption
• B. investment
• C. exports
• D. work in the home

Explanation: National output measures recorded market production, but unpaid household work is generally not bought and sold in markets.

• A. At the present time
• B. corrected for tax changes
• C. corrected for changes in interest rates
• D. At current prices

Explanation: Nominal GNP values current production using the prices prevailing in the same period.

• A. consumption investment exports
• B. investment exports transfer payments
• C. investment government expenditure exports
• D. taxes exports, transfer payments

Explanation: Injections add spending to the circular flow: investment by firms, government expenditure and exports purchased by foreigners.

• A. unemployment
• B. inflation
• C. economic growth
• D. All of the above

Explanation: Macroeconomics studies economy-wide outcomes, including unemployment, inflation and economic growth.

• A. compare living standards of different countries
• B. pay wages b multinational companies
• C. estimate the costs of economic growth
• D. convert nominal GDP to real GDP

Explanation: Purchasing power parity adjusts for differences in price levels between countries, allowing meaningful comparisons of the goods and…

• A. taxes
• B. prices
• C. exchange rates
• D. interest rates

Explanation: Real GDP values current production using prices from a fixed base year, removing the effect of inflation.

• A. investment + tax + exports
• B. savings + government expenditure + exports
• C. investment + government expenditure + imports
• D. investment + government expenditure + exports

Explanation: Injections add spending to the circular flow and consist of investment, government expenditure and exports, written as I + G + X.

• A. the slump to the expansion
• B. peak to peak
• C. peak to trough
• D. trough to peak

Explanation: A complete business cycle runs from one peak through a contraction and trough to the next peak.

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

Explanation: The GDP deflator measures the price level of all domestically produced final goods and services relative to a base year.

• A. economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s
• B. The classical model to explain the prolonged existence of high unemployment during the Great Depression
• C. fine tuning during the 1960s
• D. the economy to grow at a rapid rate during the 1950s

Explanation: Keynesian macroeconomics gained prominence because classical theory could not explain the prolonged mass unemployment of the Great…

• A. imperfectly competitive markets:
• B. Only the long run adjustments to equilibrium in the economy
• C. The functioning of individual industries and the behavior of individual decision-making units business firms and households
• D. the economy as a whole

Explanation: Macroeconomics examines aggregate variables and the performance of the economy as a whole, such as total output, employment and inflation.

• A. reduce inflation with little or no increase in unemployment
• B. Increase inflation but would decrease unemployment by an unusually large amount
• C. increase inflation with little or no decrease in unemployment
• D. reduce inflation but it would increase unemployment by an unusually large amount

Explanation: With rational expectations, a credible contraction is incorporated into wage and price decisions quickly, lowering expected and actual…

• A. Shifts the short-run Phillips curve downward and make the unemployment inflation trade-off less favorable
• B. Shifts the short run Phillips curve upward and makes the unemployment inflation trade-off more favorable
• C. Shifts the short run Phillips curve upward and makes the Unemployment inflation trade off more favorable
• D. Shifts the short run Phillips curve downward and makes the unemployment inflation trade off more favorable

Explanation: Cheaper foreign oil lowers firms’ production costs, reducing inflation at each unemployment rate and shifting the short-run Phillips curve…

• A. An increase in the minimum wage
• B. An increase in the expected inflation
• C. An increase in the price of foreign oil
• D. An increase in the aggregate demand

Explanation: A higher minimum wage can raise structural unemployment, increasing the natural rate and shifting the vertical long-run Phillips curve to…

• A. The economy will experience an increase in inflation
• B. The economy will experience a decrease in inflation
• C. Inflation will be unaffected if price expectations are unchanging
• D. None of these answers

Explanation: In the short run, expansionary policy raises aggregate demand, increasing output and inflation while reducing unemployment.