MCQOPTIONS
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MCQOPTIONS
This section includes 39 Mcqs, each offering curated multiple-choice questions to sharpen your Economics knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
Which one of the following is not a characteristic that reduces the cost of a signals currency ? |
| A. | A high degree of labour mobility among the countries of the common currency area |
| B. | A high degree of capital mobility among the countries of the common currency area |
| C. | None of the characteristics described in these answers They are all characteristics that reduce the cost of a single currency |
| D. | A high degree of trade integration among the countries of the common currency area |
| Answer» E. | |
| 2. |
Which one of the following is not an argument in support of the UK joining the EMU ? |
| A. | None of these arguments they are all arguments in support of the UK joining the UMU |
| B. | The characteristics of the UK housing market make UK consumers expenditure very sensitive to changes in interest rates |
| C. | The UK risks exclusion from the Euroland capital market with damaging consequences with damaging |
| D. | The UK needs to be a member of the EMU in order to continue to attract such large share of foreign direct investment in EU countries |
| Answer» C. The UK risks exclusion from the Euroland capital market with damaging consequences with damaging | |
| 3. |
Which of the following is a problem for fiscal policy in a currency union ? |
| A. | The central bank controls interest rates on long-term bonds issued by the governments of the member countries of the currency union |
| B. | Government of the member countries of the currency union may run large budget deficit and so crowd out private investment |
| C. | government of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest r |
| D. | It is difficult to raise enough tax revenue to pay for the operation of the currency union |
| Answer» D. It is difficult to raise enough tax revenue to pay for the operation of the currency union | |
| 4. |
Which of the following is a problem for monetary policy in a currency union ? |
| A. | Money supply is more difficult to control in a currency union. |
| B. | The inflation-unemployment trade-off is more unstable in a currency union |
| C. | All of these answers describe problems for monetary policy in a currency union |
| D. | The interest rate may be higher than is appropriate for economic conditions in some countries while it’s lower than is appropriate in some others mo |
| Answer» E. | |
| 5. |
Which of the following could not be described as an asymmetric macroeconomic shock ? |
| A. | None of these answers All of them are asymmetric macroeconomic shocks |
| B. | A sudden and substantial fall in the worldwide demand for French wine |
| C. | An epidemic of an animal disease in a country that significantly reduces the country’s agricultural output |
| D. | A sudden and substantial rise in prices on the world oil market |
| Answer» E. | |
| 6. |
What is fiscal federalism ? |
| A. | A fiscal system for a group of countries in which fiscal policy is set in a treaty signed by all the countries |
| B. | A fiscal system for a group of countries in which government budget deficits are strictly limited |
| C. | A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries |
| D. | A fiscal system in which fiscal policy is jointly determined by local and national politicians |
| Answer» D. A fiscal system in which fiscal policy is jointly determined by local and national politicians | |
| 7. |
To try to overcome the free rider problem, the members of EMU signed ? |
| A. | the stability and growth pack |
| B. | the European solidarity packs |
| C. | the exchange rate mechanism pact |
| D. | the responsibility and growth pack |
| Answer» B. the European solidarity packs | |
| 8. |
Time lags which often erode effectiveness of monetary and fiscal policy measures represent ? |
| A. | delays in the response of the economy is stabilization policy |
| B. | the foreign response to price changes |
| C. | the change in exports and imports prices |
| D. | the change in exchange rates |
| Answer» B. the foreign response to price changes | |
| 9. |
The response lag of stabilization policy represents ? |
| A. | the time that it takes for policy makers to recognize the existence of boom of bust |
| B. | the time needed for parliament to agree to a tax cut. |
| C. | the time that is necessary to put the desired policy into effect |
| D. | the time that it takes for the economy to adjust to the new conditions after a new policy has been implemented |
| Answer» E. | |
| 10. |
The public Sector Net Cash Requirement (PSNCR) is ? |
| A. | A measure of the country’s trade position |
| B. | A measure of the country’s budget position |
| C. | A measure of the country’s total debt |
| D. | A measure of the government’s monetary stance |
| Answer» C. A measure of the country’s total debt | |
| 11. |
The parable of Riding a Switchback suggest that stabilizing policy ? |
| A. | is not sufficiently stimulating or contracting the economy at any time |
| B. | is effective |
| C. | is stimulating or contracting the economy at the wrong times |
| D. | is desirable |
| Answer» D. is desirable | |
| 12. |
The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion is ? |
| A. | debt burden |
| B. | the Laffer curves |
| C. | bracket creep |
| D. | fiscal drag |
| Answer» C. bracket creep | |
| 13. |
The multiple by which total deposits can increase for every pound increase in reserves is the ? |
| A. | Money multiplier |
| B. | liquidity ratio |
| C. | bank’s line of credit |
| D. | required reserve ratio |
| Answer» B. liquidity ratio | |
| 14. |
The marginal rate of tax paid is ? |
| A. | The total tax paid / total income |
| B. | Total income / total tax paid |
| C. | Change in the tax paid / change in income |
| D. | Change in income / change in tax paid |
| Answer» D. Change in income / change in tax paid | |
| 15. |
The implementation lag for monetary policy is generally ? |
| A. | the same as it is for fiscal policy |
| B. | much shorter than it is for fiscal policy |
| C. | mush longer than it is for fiscal policy |
| D. | unrelated to central bank action |
| Answer» C. mush longer than it is for fiscal policy | |
| 16. |
The idea that the money supply should change to accommodate changes in aggregate demand is associated with the idea of ? |
| A. | Margaret Thatcher |
| B. | Ronald Reagan |
| C. | Milton Friedman |
| D. | John Maynard Keynes |
| Answer» D. John Maynard Keynes | |
| 17. |
The budget deficit tends to decrease then ? |
| A. | GDP decrease rapidly |
| B. | GDP remains unchanged |
| C. | GDP decrease slightly |
| D. | GDP increase |
| Answer» E. | |
| 18. |
Over-funding is when the State Bank of Pakistan ? |
| A. | sells less government bonds than are required to finance the PSBR |
| B. | sells more government bonds than are required to finance the PSBR |
| C. | sells government securities on the open market |
| D. | buys government securities on the open market |
| Answer» C. sells government securities on the open market | |
| 19. |
Net taxes are ? |
| A. | taxes paid by firms and households to the government minus the cost of collecting the taxes |
| B. | Taxes paid firms and households to the government minus the transfer payments made to firms and household |
| C. | Taxes paid by firms and households to the government plus transfer payments made to firm and households |
| D. | government expenditures minus government revenues |
| Answer» C. Taxes paid by firms and households to the government plus transfer payments made to firm and households | |
| 20. |
In a regressive tax system ? |
| A. | The amount of tax paid increase with income |
| B. | The marginal rate of tax decrease with more income |
| C. | The average rate of tax falls as income increase |
| D. | The average rate of tax is constant as income increases |
| Answer» D. The average rate of tax is constant as income increases | |
| 21. |
Imagine there is no tax on income up to Rs 1000 after that there is a tax of 505 what is the average tax rate on an income of Rs 20,000 ? |
| A. | Rs 50000 |
| B. | 20% |
| C. | 25% |
| D. | Rs 10000 |
| Answer» C. 25% | |
| 22. |
If two countries A and B are member of a currency union and there is a shift in consumer preferences away from the goods of country A and towards those of country B than which one of the following would help to offset the effect of the resulting changes in aggregate demand in A and B on inflation and unemployment in the tow countries ? |
| A. | A high degree of labour mobility between the tow countries |
| B. | An increase in government spending in country (A) |
| C. | A depreciation in the foreign exchange value of the common currency |
| D. | A low degree of capital mobility between the two countries |
| Answer» B. An increase in government spending in country (A) | |
| 23. |
If the State Bank of Pakistan wished to pursue a tight monetary policy it would ? |
| A. | reduce the minimum reserve asset ratio. |
| B. | buy government securities on the open market |
| C. | lower interest rates |
| D. | sell government securities on the open market |
| Answer» C. lower interest rates | |
| 24. |
If the state Bank of Pakistan wished to pursue an expansionary monetary policy it would ? |
| A. | increase the minimum reserve asset ratio. |
| B. | buy government securities on the open market |
| C. | raise interest rates |
| D. | sell government securities on the open market |
| Answer» C. raise interest rates | |
| 25. |
If the marginal rate of tax is 40% and consumers income increase from Rs10,000 to Rs12,000 ? |
| A. | The amount of tax paid will increase by Rs4,800 |
| B. | The amount of tax paid will increase by Rs4,000 |
| C. | The amount of tax paid will increase by Rs 800 |
| D. | The total tax paid will be Rs4,800 |
| Answer» E. | |
| 26. |
If the economy grows the government’s budget position will automatically ? |
| A. | worsen |
| B. | Improve |
| C. | Stay the same |
| D. | Increase with inflation |
| Answer» B. Improve | |
| 27. |
How does the eurozone compare with USA as a possible optimal currency area (OCA) ? |
| A. | The eurozone has a higher degree of labour mobility than the USA and labour law is much less restrictive in the erozone than in the USA On these measu |
| B. | The eurozone has a lower degree of labour mobility than the USA and labour law is much more restrictive in the erozone than in the USA On these measur |
| C. | The eurozone has a higher degree of labour mobility than the USA but labour law is much more restrictive in the erozone than in the USA On these measu |
| D. | The eurozone has a lower degree of labour mobility than the USA and labour law is much less restrictive in the erozone than in the USA On these measur |
| Answer» C. The eurozone has a higher degree of labour mobility than the USA but labour law is much more restrictive in the erozone than in the USA On these measu | |
| 28. |
Goodhart’s Law suggests that ? |
| A. | bad money drives out good |
| B. | monetary policy can only be effective if it is a long-term policy |
| C. | controlling one part of the money supply will merely result in that item becoming less important |
| D. | the money supply must only expand at the rate of growth of real national income |
| Answer» D. the money supply must only expand at the rate of growth of real national income | |
| 29. |
Fiscal Policy refers to ? |
| A. | The government regulation of financial intermediaries |
| B. | The spending and taxing policies used by the government to influence the economy |
| C. | The actions of the central bank in controlling the money supply |
| D. | The government’s attitude to taxation |
| Answer» C. The actions of the central bank in controlling the money supply | |
| 30. |
Fiscal drag occurs when ? |
| A. | Tax bands do not increase with inflation |
| B. | Tax rates move inversely with inflation |
| C. | Government spending falls to reduce aggregate demand |
| D. | Tax banks increase with inflation |
| Answer» B. Tax rates move inversely with inflation | |
| 31. |
By financial crowding out economist mean ? |
| A. | credit rationing |
| B. | government borrowing drives up interest rates |
| C. | Bank of England controls on commercial bank lending |
| D. | what the government borrows cannot be used for private investment |
| Answer» C. Bank of England controls on commercial bank lending | |
| 32. |
By controlling the monetary base economists mean ? |
| A. | making banks keep a certain % of their assets as M0 |
| B. | controlling the money multiplier |
| C. | restricting the amount of cash in circulation |
| D. | not allowing commercial banks to issue notes and coins |
| Answer» B. controlling the money multiplier | |
| 33. |
Automatic stabilizers act to ______ government expenditures and _______ government revenue during an expansionary period? |
| A. | increase; increase |
| B. | decrease; increase |
| C. | increase; decrease |
| D. | decrease; decrease |
| Answer» C. increase; decrease | |
| 34. |
Automatic stabilisers act to ____ government expenditures and ____ government revenues during recessions ? |
| A. | increase: increase |
| B. | decrease; decrease |
| C. | increase; decrease |
| D. | decrease; increase |
| Answer» D. decrease; increase | |
| 35. |
As the required reserve ratio is decreased the money multiplier ? |
| A. | could either increase or decrease |
| B. | decrease |
| C. | increase |
| D. | remain the same, as long as bank hold no excess reserves |
| Answer» D. remain the same, as long as bank hold no excess reserves | |
| 36. |
As an economy grows ? |
| A. | The government’s budget position should automatically improve |
| B. | The government’s budget position should automatically worsen |
| C. | This will have no effect on the government’s budget position |
| D. | This will reduce the government’s tax revenue |
| Answer» C. This will have no effect on the government’s budget position | |
| 37. |
A reflationary (expansionist) fiscal policy could include ? |
| A. | Lower interest rates |
| B. | Increased lending by the banks |
| C. | An increase in corporation tax |
| D. | An increase in discretionary government spending |
| Answer» C. An increase in corporation tax | |
| 38. |
A high degree of real wage flexibility will tend to reduce the cost to a country of joining a currency union because ? |
| A. | All of the reasons given in these answers are correct |
| B. | real wages fall rapidly in a recession and the economy moves quickly back to long run equilibrium so limiting the duration of the recession even when |
| C. | workers will move from a country in which aggregate demand falls to other countries of the currency union, and so unemployment remains lower than it o |
| D. | real wages fall and so offset the inflationary effect of switching from the old currency to the new common currency |
| Answer» C. workers will move from a country in which aggregate demand falls to other countries of the currency union, and so unemployment remains lower than it o | |
| 39. |
A government might use tax to ? |
| A. | Discourage consumption of positive externalities |
| B. | Discourage consumption of public goods |
| C. | Discourage consumption of merit goods |
| D. | Discourage consumption of negative externalities |
| Answer» D. Discourage consumption of negative externalities | |