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. a higher rate of inflation is associated with a lower unemployment rate
- B. a higher rate of growth in output is associated with a lower unemployment rate
- C. a higher rate of inflation is associated with a higher unemployment rate
- D. a higher rate of growth in output is associated with a higher unemployment rate.
Explanation: Along a short-run Phillips curve, stronger demand tends to raise inflation and employment, so the unemployment rate falls.
Correct answer: a higher rate of inflation is associated with a lower unemployment rate- A. the trade-off between inflation and unemployment
- B. The trade-off between output and unemployment
- C. The positive relationship between output and unemployment
- D. The positive relationship between inflation and unemployment
Explanation: The original Phillips curve showed an inverse short-run relationship between wage or price inflation and unemployment.
Correct answer: the trade-off between inflation and unemployment- A. an increase in the level of output
- B. a decrease in the unemployment rate
- C. an increase in the rate of inflation
- D. All of these answers
Explanation: Repeated expansionary monetary policy cannot permanently keep unemployment below its natural rate because expectations adjust upward.
Correct answer: an increase in the rate of inflation1244. If the sacrifice ratio is five, a reduction in inflation from 7 percent to 3 percent would require ?
- A. a reduction in output of 20 percent
- B. a reduction in output of 5percent
- C. a reduction in output of 15 percent
- D. a reduction in output of 35 percent
Explanation: The inflation reduction is 7 minus 3, or 4 percentage points. With a sacrifice ratio of 5, the required output loss is 5 × 4 = 20 percent.
Correct answer: a reduction in output of 20 percent- A. in the long run the unemployment rate returns to the natural rate, regardless of inflation
- B. Unemployment is always below the natural rate
- C. Unemployment is always above the natural rate
- D. Unemployment is always equal to the natural rate
Explanation: The natural-rate hypothesis states that monetary or inflation changes may affect unemployment temporarily, but in the long run…
Correct answer: in the long run the unemployment rate returns to the natural rate, regardless of inflation- A. Unemployment is equal to the natural rate of unemployment
- B. People will reduce their expectations of inflation in the future
- C. Unemployment is greater than the natural rate of unemployment
- D. Unemployment is less than the natural rate of unemployment
Explanation: If actual inflation exceeds expected inflation, real wages are lower than anticipated, encouraging firms to hire more and reducing…
Correct answer: Unemployment is less than the natural rate of unemployment- A. shifts the short run Phillips curve downward and the unemployment inflation trade-off is less favorable.
- B. shifts the short-run Phillips curve upward and the unemployment inflation trade-off is more favorable
- C. Shift the short-run Phillips curve downward and the unemployment inflation trade-off is more favorable
- D. Shifts the Short run Phillips curve upward and the unemployment inflation trade-off is less favorable
Explanation: Higher expected inflation shifts the short-run Phillips curve upward because a given unemployment rate is associated with higher actual…
Correct answer: Shifts the Short run Phillips curve upward and the unemployment inflation trade-off is less favorable- A. is vertical
- B. is negatively sloped
- C. has a slope that is determined by how fast people adjust their price expectations
- D. is positively sloped
Explanation: Once people fully adjust their expectations, inflation no longer keeps unemployment away from its natural rate.
Correct answer: is vertical- A. decreases unemployment
- B. decrease growth
- C. increases unemployment
- D. decreases inflation
Explanation: In the short run, stronger aggregate demand raises both the price level and real output.
Correct answer: decreases unemployment- A. The sum of the growth rate of output and the inflation rate
- B. The sum of the natural rate of unemployment and the actual rate of unemployment
- C. The sum of the inflation rate and the central bank's refinancing rate
- D. The sum of the unemployment rate and the inflation rate
Explanation: The misery index is a simple indicator formed by adding the unemployment rate to the inflation rate.
Correct answer: The sum of the unemployment rate and the inflation rate- A. capitalism exploits the worker and socialism exploits the property owner
- B. capitalism relies on the market to make economic decisions and socialism uses central planning
- C. capitalism grows through rent seeking and socialism grows through government direction
- D. capitalism relies on consumer satisfaction to dictate choices and socialism relies on producer satisfaction
Explanation: Capitalism mainly coordinates production through market prices and private decisions, whereas socialism relies on central planning to…
Correct answer: capitalism relies on the market to make economic decisions and socialism uses central planning- A. monopolistic business from abroad
- B. reactionary ruling coalitions
- C. weak domestic middle class
- D. All of the above
Explanation: Baran linked underdevelopment to foreign monopolistic interests, reactionary ruling coalitions, and the weakness of an independent…
Correct answer: All of the above- A. Supply
- B. infrastructure
- C. agriculture
- D. services
Explanation: Rosenstein-Rodan's big-push theory treats infrastructure as a major indivisibility: roads, power, transport, and related facilities…
Correct answer: infrastructure- A. a country is poor because it has lower productivity but high savings
- B. as countries grow richer they save less
- C. poverty perpetuates itself in mutually reinforcing circles on supply and demand sides
- D. market size is large in LDCs
Explanation: The vicious-circle theory says low income causes low saving and investment, which keeps productivity and income low; weak demand…
Correct answer: poverty perpetuates itself in mutually reinforcing circles on supply and demand sides- A. directly related to savings and inversely related to the capital/output ratio
- B. directly related to the capital/output ratio and inversely related to savings
- C. indirectly related to savings and the capital/output ratio
- D. directly related to savings and the capital/output ratio
Explanation: In the Harrod-Domar model, the growth rate is approximately g = s/v, where s is the saving rate and v is the capital-output ratio.
Correct answer: directly related to savings and inversely related to the capital/output ratio- A. based on an alliance between landowners and peasants
- B. based on an alliance between peasants and the foreign bourgeoisie
- C. transferred from one elite to another when revolution occurs
- D. derived from domestic opponents of nationalism
Explanation: A criticism of Baran's thesis is that revolutionary change may replace one ruling elite with another rather than transferring power…
Correct answer: transferred from one elite to another when revolution occurs- A. the difficulty of testing the stages scientifically
- B. conditions for takeoff are contradicted by historical evidence
- C. characteristics of one stage are not unique to that stage
- D. All of the above are correct
Explanation: Rostow's stages have been criticised because they are difficult to test, historical evidence does not consistently support the proposed…
Correct answer: All of the above are correct- A. with an average product of labor in agriculture that is negative
- B. with a downward-sloping supply curve of labor
- C. with a marginal productivity of labor zero or negligible in industry
- D. with a traditional agricultural sector and an industrial capitalist sector
Explanation: The Lewis dual-sector model begins with a traditional subsistence agricultural sector alongside a modern industrial capitalist sector.
Correct answer: with a traditional agricultural sector and an industrial capitalist sector- A. balanced growth
- B. capitalization
- C. elasticity of capital
- D. indivisibilities
Explanation: Balanced growth means applying investment simultaneously across a broad range of industries so that each sector creates demand for the…
Correct answer: balanced growth- A. The preconditions for takeoff, the takeoff, the drive to maturity and the age of creative destruction
- B. The traditional society the preconditions for takeoff, the takeoff, the drive to maturity and the age of high mass consumption
- C. the preconditions for consumption the replication the drive to maturity and the age of high mass consumption
- D. the learning curve the age of high mass consumption post takeoff, and the drive to maturity
Explanation: Rostow's five stages are traditional society, preconditions for takeoff, takeoff, drive to maturity, and the age of high mass consumption.
Correct answer: The traditional society the preconditions for takeoff, the takeoff, the drive to maturity and the age of high mass consumption