Explore topic-wise MCQs in Economics Mcqs.

This section includes 20 Mcqs, each offering curated multiple-choice questions to sharpen your Economics Mcqs knowledge and support exam preparation. Choose a topic below to get started.

1.

Policy makers are said to “accommodate” an adverse supply shock if they ?
A. fail to respond to the adverse supply shock and allow the economy to adjust on its own.
B. respond to the adverse supply shock by decreasing aggregate demand which lower prices
C. respond to the adverse supply shock by decreasing short run aggregate supply
D. respond to the adverse supply shock by increasing aggregate demand, which further raises prices
Answer» E.
Discussion
2.

According to the model of aggregate supply and aggregate demand in the long run an increase in the money supply should cause ?
A. Prices to rise and output to rise
B. Price to fall and output to remain unchanged
C. Prices to fall and output to fall
D. prices to rise and output to remain unchanged
Answer» E.
Discussion
3.

Stagflation occurs when the economy experiences ?
A. rising prices and rising output
B. rising prices and falling output
C. falling prices and falling output
D. falling prices and rising output
Answer» C. falling prices and falling output
Discussion
4.

Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers wished to move output to its long run natural rate they should attempt to ?
A. Shift aggregate demand to the left
B. Shift short run aggregate supply to the left
C. shift aggregate demand to the right
D. shift short-run aggregate supply to the right
Answer» D. shift short-run aggregate supply to the right
Discussion
5.

Suppose the economy is initially is long run equilibrium Then suppose there is a drought that destroys much of the wheat crop According to the model of aggregate demand and aggregate supply, what happens of prices and output in the short run ?
A. Price rise; output falls
B. Price fall; output rises
C. Price rise; output rises
D. Price fall; output falls
Answer» B. Price fall; output rises
Discussion
6.

Suppose the economy is initially in long-run equilibrium Then suppose there is an increase in military spending due to rising international tensions According to the model of aggregate demand and aggregate supply what happens to prices and output in the short run ?
A. Price fall; output rises
B. Price fall; output falls
C. Price rise; output fall
D. Price rise; output rise
Answer» E.
Discussion
7.

Suppose the price level falls but because of fixed nominal wage contracts the real wage rises and firms cut back on production This is a demonstration of the ?
A. sticky-wage theory of the short-run aggregate supply curve
B. classical dichotomy theory of the short-run aggregate supply curve
C. misperceptions theory of the short-run aggregate supply curve
D. sticky-price theory of the short run aggregate supply curve
Answer» B. classical dichotomy theory of the short-run aggregate supply curve
Discussion
8.

According to the wealth effect aggregate demand slopes downward (negatively) because ?
A. lower prices increase the value of money holding and consumers spending increase
B. lower prices decrease the value of money holding and consumers spending decrease
C. lower prices reduce money holding increase lending, interest rates fall and investment spending increase
D. lower prices increase money holding decrease lending, interest rates rise and investment spending falls
Answer» B. lower prices decrease the value of money holding and consumers spending decrease
Discussion
9.

Which of the following is not a reason why the aggregate demand curve slopes downward ?
A. The exchange-rate effect
B. The wealth effect
C. The classical dichotomy/monetary neutrality effect
D. The interest-rate effect
Answer» D. The interest-rate effect
Discussion
10.

Which of the following events shifts the short run aggregate supply curve to the right ?
A. a decrease in the money supply
B. a drop-in oil prices
C. an increase in government spending on military equipment
D. None of these answers
E. an increase in price expectations
Answer» C. an increase in government spending on military equipment
Discussion
11.

Suppose the economy is initially in long-run equilibrium Then suppose there is an increase in military spending due to rising international tensions According to the model of aggregate demand and aggregate supply what happens to prices and output in the long run ?
A. Output falls; prices are unchanged from the initial value
B. Price fall; output is unchanged from its initial value
C. Output and the price level are unchanged from their initial values
D. Prices rise; output is unchanged from its initial value
Answer» E.
Discussion
12.

Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers allow the economy to adjust to the long run natural rate on its own, ?
A. People will reduce their price expectations and the short run aggregate supply will shift right
B. People will raise their price expectations and aggregate demand will shift left
C. People will raise their price expectations and the short run aggregate supply will shift left
D. People will reduce their price expectations and aggregate demand will shift right
Answer» B. People will raise their price expectations and aggregate demand will shift left
Discussion
13.

Suppose the economy is initially in long run equilibrium Then suppose there is a drought that destroys much of the wheat crop if policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model to aggregate demand and aggregate supply what happens to prices and output in the long run ?
A. Output rises; prices are unchanged from the initial value
B. Output and the price level are unchanged from their initial values
C. Output falls; prices are unchanged from the initial value
D. Prices fall; output is unchanged from its initial value
Answer» C. Output falls; prices are unchanged from the initial value
Discussion
14.

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to ?
A. shift the short-run aggregate supply curve to the left
B. shift the aggregate demand curve to the right
C. shift the short-run aggregate supply curve to the right
D. shift the aggregate demand curve to the left
Answer» C. shift the short-run aggregate supply curve to the right
Discussion
15.

Which of the following statements about economic fluctuations is true ?
A. None of these answers
B. A depression is a mild recession
C. A variety of spending income, and output measures can be used to measure economic fluctuation because most macroeconomic quantitties tend to fluctuate
D. A recession is when output rises above the natural rate of output
Answer» D. A recession is when output rises above the natural rate of output
Discussion
16.

Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply cruve ?
A. Is vertical because an equal change in all prices and wages leaves output unaffected
B. is positively sloped because price expectations and wages tend to be fixed is the long run
C. shifts right when the government raises the minimum wage
D. shifts left when the natural rate of unemployment falls
Answer» B. is positively sloped because price expectations and wages tend to be fixed is the long run
Discussion
17.

Which of the following would not cause a shift in the long-run aggregate supply curve ?
A. All of these answers shift the long-run aggregate supply curve
B. An increase in the available capital
C. An increase in the available labour
D. An increase in price expectations
Answer» E.
Discussion
18.

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen Thinking there has been a fall in the relative price of their product they cut back on production, This is a demonstration of the ?
A. misperceptions theory of the short run aggregate supply curve
B. classical dichotomy theory of the short run aggregate supply curve
C. sticky price theory of the short run aggregate supply curve
D. sticky wage theory of the short run aggregate supply curve
Answer» B. classical dichotomy theory of the short run aggregate supply curve
Discussion
19.

The natural rate of output is the amount of real GDP produced ?
A. When the economy is at the natural rate of unemployment
B. When the economy is at the natural rate of investment
C. When the economy is at the natural rate of aggregate demand
D. When there is no no unemployment
Answer» B. When the economy is at the natural rate of investment
Discussion
20.

According to the interest rate effect aggregate demand slopes downward (negatively) because ?
A. lower prices increase money holdings decrease lending interest rates rise, and investment spending falls
B. lower prices increase the value of money holding and consumer spending increases
C. lower prices decrease the value of money holdings and consumers spending decreases
D. lower prices reduce money holdings increase lending interest rates fall, and investment spending increase
Answer» E.
Discussion