Free Macroeconomics MCQs with Answers

• A. Buys govt. securities in stock market
• B. Sells govt. securities
• C. Lowers discount rate
• D. B and C of above

Explanation: Selling government securities withdraws money from purchasers and reduces the reserves available to commercial banks for lending.

• A. The exchange rates
• B. The interest rates
• C. The money supplies
• D. The real national income

Explanation: When banks create credit, they create new deposit money, so the immediate effect is an increase in the money supply.

• A. Low rate of interest
• B. Very low rate of interest
• C. High rate of interest
• D. Very high rate of interest

Explanation: A liquidity trap occurs when interest rates are already very low, so people prefer holding cash and further increases in money supply do…

• A. The cash reserve requirement
• B. The amount of cash available
• C. The number of branches of a bank
• D. A and B of above

Explanation: Credit creation depends on both the reserve requirement, which limits the deposit multiplier, and the cash or reserves available to the…

• A. The number of times a unit of money changes hands daily
• B. The number of times as unit of money changes hands monthly
• C. The number of times a unit of money changes hands annually
• D. The number of times a unit of money changes value

Explanation: Velocity of money measures how many times, on average, one unit of money is used in transactions during a given period.

• A. Availability of gold in the country
• B. Availability of dollars in the country
• C. Demand for money in the country
• D. Tax collection

Explanation: In a modern monetary system, currency issuance is linked mainly to the economy’s demand for money and monetary policy rather than to gold…

• A. Increase in nominal GNP
• B. Increase in real GNP
• C. Increase in personal income
• D. Increase in government revenue

Explanation: Real GNP removes the effect of price changes, so its increase reflects growth in actual output rather than merely inflation.

• A. Bearish
• B. Bullish
• C. Hottest
• D. Rising up

Explanation: A bullish market is one in which prices are rising or are expected to rise.

• A. An increases demand for its exports
• B. Increased demand for its imports
• C. An increased inflow of capital
• D. None of the above

Explanation: Greater demand for imports increases the supply of the country’s currency in the foreign-exchange market, tending to reduce its value.

• A. Increase in money supply
• B. Fall in production
• C. Increase in money supply and fall in production
• D. Decrease in money supply and fall in production

Explanation: Inflation can result from too much money chasing goods, from reduced production, or from both together.

• A. Foreign income
• B. Capital consumption allowance
• C. Indirect taxes
• D. Direct taxes

Explanation: Net national income is obtained by subtracting capital consumption allowance, or depreciation, from gross national income.

• A. Is the same as economic growth
• B. Means improvement in lifestyle
• C. Exists when there is equal distribution of income
• D. All of the above

Explanation: Economic development is broader than economic growth because it includes improvements in living standards, health, education and quality…

• A. Investment
• B. Subsidies
• C. Taxation
• D. Consumption

Explanation: Taxation is a leakage, or withdrawal, from the circular flow because it reduces households' and firms' spending power.

• A. Household's purchases of food
• B. Households' purchase of a car
• C. Household's payment of rent for an apartment
• D. Household's purchase of stock in any XYZ corporation

Explanation: Buying shares is a purchase of a financial asset, not current consumption of goods or services.

• A. Gross investment minus household investment
• B. Gross investment minus govt. Investment
• C. Gross investment minus capital consumption allowance
• D. None of the above

Explanation: Net investment measures the addition to the capital stock after allowing for depreciation.

• A. Expenditure method
• B. Income method
• C. Product method
• D. All of the above

Explanation: National income can be calculated through the expenditure, income and product methods.

• A. Fall in prices due to less circulation of currency
• B. Fall in employment due to declining production
• C. High inflation rate combined with high unemployment and unchanged consume demand
• D. None of these

Explanation: Stagflation combines persistent inflation with weak economic activity and high unemployment.

• A. National income
• B. Per capita income
• C. Poverty ratio
• D. None of these

Explanation: Per capita income divides national income by the population, giving an average income figure that is more useful for comparing living…

• A. National income
• B. Saving
• C. Imports at lower cost
• D. Exports

Explanation: Devaluation makes a country's goods relatively cheaper for foreign buyers, increasing export competitiveness.

• A. Acting as bankers to the government
• B. Advising the government on monetary policy
• C. Dealing in foreign exchange
• D. Fixing the main interest rate

Explanation: Both types of banks may deal in foreign exchange, such as buying and selling foreign currencies.