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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1481. An economy's marginal propensity to save is 0.25. In the simple model, its expenditure multiplier is
- A. 1.25
- B. 2
- C. 4
- D. 5
Explanation: The simple expenditure multiplier equals 1 divided by the marginal propensity to save. Therefore, 1 divided by 0.25 equals 4.
Correct answer: 4- A. Appreciation
- B. Depreciation
- C. Devaluation
- D. Revaluation
Explanation: Devaluation is an official reduction in the value of a currency maintained under a fixed or managed exchange rate.
Correct answer: Devaluation- A. It excludes the value of all manufactured goods
- B. It ignores the distribution of income among households
- C. It counts exports as reductions in national output
- D. It includes only goods sold in international markets
Explanation: GDP measures the value of production, but it does not show how income is distributed among people.
Correct answer: It ignores the distribution of income among households1484. In the simple macroeconomic model, disposable income is the income that households can use for
- A. Consumption and saving after personal taxes
- B. Imports and exports before government taxes
- C. Government purchases and private investment
- D. Wages and profits before production costs
Explanation: Disposable income is personal income remaining after direct personal taxes and transfer adjustments.
Correct answer: Consumption and saving after personal taxes- A. It reduces borrowing and lowers consumption
- B. It raises borrowing and may increase investment
- C. It increases saving and reduces planned spending
- D. It lowers asset prices and decreases household wealth
Explanation: A lower policy rate tends to reduce market borrowing costs, encouraging interest-sensitive consumption and investment.
Correct answer: It raises borrowing and may increase investment- A. Feel poorer and reduce some consumption spending
- B. Feel richer and increase planned tax payments
- C. Face lower export prices and increase foreign demand
- D. Receive higher real wages and reduce labour supply
Explanation: A higher price level reduces the purchasing power of money balances held by households.
Correct answer: Feel poorer and reduce some consumption spending- A. A fall in the price of imported raw materials
- B. An increase in expected future inflation
- C. A reduction in personal income tax rates
- D. An increase in household financial wealth
Explanation: Higher expected inflation can lead workers and firms to seek higher wages and prices, raising production costs in the short run.
Correct answer: An increase in expected future inflation- A. A trade surplus
- B. A fiscal surplus
- C. A capital account deficit
- D. A primary income deficit
Explanation: A trade surplus occurs when the value of exports of goods and services is greater than the value of imports.
Correct answer: A trade surplus- A. Export prices rise relative to import prices
- B. Import prices rise relative to export prices
- C. The domestic money supply falls without trade changes
- D. Domestic unemployment rises while trade prices remain fixed
Explanation: Terms of trade compare export prices with import prices. When export prices rise relative to import prices, the country can obtain more…
Correct answer: Export prices rise relative to import prices- A. A rise in unemployment benefits during a downturn
- B. A government decision to fund a new motorway project
- C. A fall in tax revenue caused by lower household incomes
- D. A reduction in welfare payments caused by fewer claims
Explanation: Discretionary fiscal policy involves a deliberate change in government spending or taxation.
Correct answer: A government decision to fund a new motorway project- A. An export of goods in the current account
- B. A portfolio investment inflow in the financial account
- C. A transfer payment in the secondary income account
- D. A reduction in official reserve assets in the financial account
Explanation: The purchase of domestic shares by a foreign investor is a financial asset transaction and is recorded as portfolio investment in the…
Correct answer: A portfolio investment inflow in the financial account- A. A temporary increase in consumer borrowing
- B. A sustained increase in the economy's capital stock
- C. A one-time rise in government purchases
- D. A short-lived increase in the general price level
Explanation: A larger capital stock increases the economy's productive capacity and can raise potential output over time.
Correct answer: A sustained increase in the economy's capital stock- A. a fall in aggregate income that may reduce total saving
- B. a rise in consumption that increases total income
- C. a rise in imports that improves domestic employment
- D. a fall in investment caused by higher exports
Explanation: If all households attempt to save more, consumption falls and aggregate demand decreases.
Correct answer: a fall in aggregate income that may reduce total saving- A. reduce the lending capacity of commercial banks
- B. increase the money multiplier through larger loans
- C. lower the amount of reserves held by commercial banks
- D. increase aggregate demand through cheaper credit
Explanation: A higher reserve ratio requires banks to retain a larger share of deposits and leaves less available for lending.
Correct answer: reduce the lending capacity of commercial banks- A. is outside the labour force because the person stopped seeking work
- B. is unemployed because the person is actively seeking a job
- C. is employed part time because the person wants full-time work
- D. is included in the labour force because the person receives benefits
Explanation: A discouraged worker is available for work but has stopped actively looking because of poor job prospects.
Correct answer: is outside the labour force because the person stopped seeking work- A. 3 percent
- B. 4 percent
- C. 7 percent
- D. 11 percent
Explanation: Real GDP growth is approximately nominal GDP growth minus the increase in the general price level.
Correct answer: 3 percent1497. Which situation best illustrates an adverse monetary policy transmission effect on investment?
- A. Higher interest rates make borrowing for capital projects more expensive
- B. Lower interest rates reduce the cost of financing new machinery
- C. Higher household income increases demand for consumer goods
- D. Lower import prices reduce the cost of foreign raw materials
Explanation: When monetary tightening raises interest rates, firms face a higher cost of borrowing and may cancel or delay investment projects.
Correct answer: Higher interest rates make borrowing for capital projects more expensive- A. current account balance
- B. government budget balance
- C. trade tariff revenue
- D. nominal exchange rate
Explanation: The national income accounting identity states that saving minus domestic investment equals net exports, which broadly corresponds to the…
Correct answer: current account balance- A. An increase in output produced by better worker skills and technology
- B. An increase in output caused only by a larger working population
- C. An increase in the number of hours worked with unchanged productivity
- D. An increase in production caused by using more land with unchanged methods
Explanation: Intensive growth means producing more output from each unit of input through higher productivity.
Correct answer: An increase in output produced by better worker skills and technology