Free Macroeconomics MCQs with Answers

• A. More spending by the government reduces poverty
• B. Higher taxes lead to less desire to work
• C. The Pakistan's economy is growing fast relative to other SAARC members
• D. The government should concentrate on reducing unemploymentSend Money Overseas

Explanation: A normative statement expresses a value judgment or recommendation, signaled here by “should.” The other statements are positive claims…

• A. Okun's Law
• B. classical theory
• C. Consumer price index
• D. none of the above

Explanation: Okun's law describes the inverse relationship between unemployment and real output: a rise in unemployment is associated with slower real…

• A. Net national product at factor cost
• B. Gross domestic product at market prices
• C. Net domestic product at market prices
• D. Gross national product at factor cost

Explanation: National income is conventionally defined as net national product at factor cost.

• A. To avoid counting the same output more than once
• B. To include household transfers in national output
• C. To convert nominal production into real production
• D. To measure only goods sold in foreign markets

Explanation: Value added at each production stage prevents intermediate goods from being counted repeatedly.

• A. 8 percent
• B. 10 percent
• C. 12 percent
• D. 20 percent

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

• A. A movement down the aggregate demand curve
• B. A rightward shift of aggregate demand
• C. A leftward shift of short-run aggregate supply
• D. A movement up the aggregate supply curve

Explanation: Greater consumer confidence usually raises planned consumption at each price level.

• A. Lower prices and higher real output
• B. Higher prices and lower real output
• C. Higher prices and higher real output
• D. Lower prices and lower real output

Explanation: Imported petroleum is an important production input, so its higher price raises firms' costs.

• A. Exports become cheaper and imports become dearer
• B. Exports become dearer and imports become cheaper
• C. Both exports and imports become cheaper
• D. Both exports and imports become dearer

Explanation: An appreciation increases the foreign-currency price of the country's exports and reduces the domestic-currency price of imports.

• A. Has a job at the prevailing wage
• B. Is either employed or actively seeking work
• C. Is unemployed and receiving benefits
• D. Works in the formal sector only

Explanation: The labour force consists of employed people and unemployed people who are actively seeking work.

• A. Prevent its currency from depreciating below the fixed rate
• B. Prevent its currency from appreciating above the fixed rate
• C. Increase imports through cheaper foreign currency
• D. Reduce the domestic value of foreign reserves

Explanation: Selling foreign currency and buying domestic currency increases demand for the domestic currency.

• A. A lower nominal interest rate
• B. A higher nominal interest rate
• C. A lower real output growth rate only
• D. A fall in the money demand for transactions

Explanation: The Fisher relationship states that the nominal interest rate is approximately the real interest rate plus expected inflation.

• A. A deflationary gap
• B. An inflationary gap
• C. A balance of payments gap
• D. A structural unemployment gap

Explanation: An inflationary gap exists when actual output is above potential output at normal resource utilisation.

• A. The general price level
• B. Consumer expectations
• C. Government purchases
• D. The money supply

Explanation: A change in the general price level changes the quantity of real output demanded and produces movement along the existing aggregate demand…

• A. 3 percent
• B. 5 percent
• C. 8 percent
• D. 11 percent

Explanation: The approximate expected real interest rate equals the nominal interest rate minus expected inflation.

• A. Banks are legally unable to create deposits
• B. People are willing to hold additional money at a very low interest rate
• C. The government automatically raises taxes during a recession
• D. Exports fall whenever the money supply increases

Explanation: In a liquidity trap, interest rates are very low and people prefer holding liquid money rather than bonds.

• A. The tax multiplier is larger than the spending multiplier
• B. The direct spending effect exceeds the negative consumption effect
• C. Taxes have no effect on household income
• D. Government spending is excluded from aggregate demand

Explanation: An equal rise in spending and taxes raises aggregate demand by the balanced-budget multiplier, which is one in the simple Keynesian model.

• A. Do not involve market transactions with measured prices
• B. Always use imported inputs
• C. Reduce the country's capital stock
• D. Are counted as government consumption

Explanation: GDP records market production or production assigned a measurable market value.

• A. The level of the money supply
• B. The rate of change in aggregate output
• C. The stock of foreign exchange reserves
• D. The average level of consumer prices

Explanation: The accelerator principle links investment to changes in output or demand rather than merely to the existing level of output.

• A. Leftward because costs rise
• B. Rightward because productive capacity increases
• C. Leftward because consumption falls
• D. Rightward only if the price level increases

Explanation: Better technology allows an economy to produce more output from its available resources.

• A. A deficit caused only by a temporary recession
• B. A deficit that remains even when the economy produces at potential output
• C. A deficit caused by emergency spending after a natural disaster
• D. A deficit that disappears when unemployment benefits rise

Explanation: A structural deficit exists because government revenues and planned expenditures are mismatched even at normal or potential output.