Explore topic-wise MCQs in Economics.

This section includes 50 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 of the following taxes can be supported by the benefits principle of taxation ?

A. All these answers can be supported by the benefits principle of taxation
B. Progressive income taxes used to pay for national defense
C. Petrol taxes used to pay for roads
D. property taxes used to pay for policies and the court system
Answer» B. Progressive income taxes used to pay for national defense
Discussion
2.

Which of the following would likely cause the greatest deadweight loss ?

A. a tax on salt
B. a tax on cigarettes
C. a tax on petrol
D. a tax on cruise line tickets
Answer» E.
Discussion
3.

Which of the following would shift the long-run Phillips curve to the right ?

A. An increase in the minimum wage
B. An increase in the expected inflation
C. An increase in the price of foreign oil
D. An increase in the aggregate demand
Answer» B. An increase in the expected inflation
Discussion
4.

Which of the following is true with regard to a tax on labor income? Taxes on labor income tend to encourage ?

A. the unscrupulous to enter the underground economy
B. the elderly to retire early.
C. all the things described in these answers.
D. second earners to stay home.
E. workers to work fewer hours
Answer» D. second earners to stay home.
Discussion
5.

When actual inflation exceeds expected inflation ?

A. Unemployment is equal to the natural rate of unemployment
B. People will reduce their expectations of inflation in the future
C. Unemployment is greater than the natural rate of unemployment
D. Unemployment is less than the natural rate of unemployment
Answer» E.
Discussion
6.

When a tax on a good start small and is gradually increased tax revenue ?

A. will fall
B. will rise
C. will first rise and then fall
D. will first fall and then rise
Answer» D. will first fall and then rise
Discussion
7.

When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise the tax has ?

A. caused a deadweight loss
B. decreased equity
C. generated no tax revenue
D. increased efficiency
Answer» B. decreased equity
Discussion
8.

The reduction of tax ?

A. will have no impact on tax revenue.
B. will always reduce tax revenue regardless of the prior size of the tax
C. could increase tax revenue if the tax had been extremely high
D. causes a market to become less efficient
Answer» D. causes a market to become less efficient
Discussion
9.

The Phillips curve is an extension of the model of aggregate supply and aggregate demand because, in the short run, an increase in aggregate demand increase price and ?

A. decreases unemployment
B. decrease growth
C. increases unemployment
D. decreases inflation
Answer» B. decrease growth
Discussion
10.

The original Phillips curve illustrates ?

A. the trade-off between inflation and unemployment
B. The trade-off between output and unemployment
C. The positive relationship between output and unemployment
D. The positive relationship between inflation and unemployment
Answer» B. The trade-off between output and unemployment
Discussion
11.

The natural rate hypothesis argues that ?

A. in the long run the unemployment rate returns to the natural rate, regardless of inflation
B. Unemployment is always below the natural rate
C. Unemployment is always above the natural rate
D. Unemployment is always equal to the natural rate
Answer» B. Unemployment is always below the natural rate
Discussion
12.

The misery index Which some commentators suggest measures the health of the economy, is ?

A. The sum of the growth rate of output and the inflation rate
B. The sum of the natural rate of unemployment and the actual rate of unemployment
C. The sum of the inflation rate and the central bank’s refinancing rate
D. The sum of the unemployment rate and the inflation rate
Answer» E.
Discussion
13.

The marginal tax rate is ?

A. the taxes paid by the marginal worker
B. total income divided by total taxes paid
C. the extra taxes paid on an additional unit of income
D. total taxes paid divided by total income
Answer» D. total taxes paid divided by total income
Discussion
14.

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a ?

A. none of these answers
B. Reagan curve
C. Keynesian curve
D. Laffer curve
E. Henry George curve.
Answer» E. Henry George curve.
Discussion
15.

The average tax rate is ?

A. total taxes paid divided by total income
B. the extra taxes paid on an additional dollar or income.
C. the taxes paid by the marginal worker
D. total income divided by total taxes paid
Answer» B. the extra taxes paid on an additional dollar or income.
Discussion
16.

The appropriate tax rate to consider judging the vertical equity of a tax system is the ?

A. marginal tax rate
B. average tax rate
C. horizontal tax rate
D. proportional tax rate
Answer» C. horizontal tax rate
Discussion
17.

The appropriate tax rate to consider gauging how much the tax system distorts incentives and decision making is the ?

A. Proportional tax rate
B. average tax rate
C. marginal tax rate
D. vertical tax rate
E. horizontal tax rate
Answer» D. vertical tax rate
Discussion
18.

Sana values a pair of blue jeans at Rs400. If the price is Rs350 Sana buys the jeans and generates consumer surplus of Rs50 Suppose a tax is placed on blue jeans that causes the price of blue jeans to rise to Rs450 Now sana chooses not to buy a pair of?

A. the deadweight has demonstrated
B. the ability-to-pay principle
C. the benefits principle
D. horizontal equity
E. The administrative burden of a tax.
Answer» B. the ability-to-pay principle
Discussion
19.

Refer to Exhibit 6.Suppose the economy is in long-run equilibrium at point E. A sudden increase in government spending should move the economy in the direction of point ?

A. d
B. G
C. E
D. b
Answer» B. G
Discussion
20.

Refer to Exhibit 6. Suppose the economy is Operating in long-run equilibrium at point E. In the long run a monetary contraction will move the economy in the direction of point ?

A. F
B. a
C. H
D. I
Answer» D. I
Discussion
21.

Refer to Exhibit 6. Suppose the economy is Operating in long-run equilibrium at point E. An unexpected monetary contraction will move the economy in the direction of point ?

A. H
B. F
C. E
D. c
Answer» C. E
Discussion
22.

Refer to Exhibit 6.If People in the economy expect inflation to be 6 percent but inflation turn out to be 3 percent the economy is operating at point ?

A. H
B. c
C. d
D. F
Answer» E.
Discussion
23.

Refer to Exhibit 6.If People in the economy expect inflation to be 3 percent and inflation is 3 percent the economy is operating at point ?

A. b
B. I
C. a
D. H
Answer» E.
Discussion
24.

Refer to Exhibit 6. Suppose the economy is operating at point (D) As people revise their price expectations ?

A. The short-run Phillips curve will shift in the direction of the short-run Phillips curve associated with an expectation of 3 percent inflation
B. The short-run Phillips curve will shift in the direction of the short-run Phillips curve associated with an expectation of 9 per cent inflation
C. The short-run Phillips curve will shift in the direction of the short-run Phillips curve associated with an expectation of 6 percent inflation
D. The long-run Phillips curve will shift to the left
Answer» E.
Discussion
25.

Refer to Exhibit 4. Which of the following is true with regard to the burden of the tax in Exhibit 4 ?

A. The buyers pay a larger portion of the tax because demand is more inelastic than supply
B. The sellers pay a larger portion of the tax because supply is more elastic than demand
C. The buyers pay a larger portion of the tax because demand is more elastic then supply
D. The sellers pay a larger portion of the tax because supply is more inelastic than demand
Answer» E.
Discussion
26.

Refer to Exhibit 4. If there is no tax placed on the product in this market total surplus is the area ?

A. B + C + E + F
B. E + F
C. A + B + C + D
D. A + B + C + D + E + F
Answer» E.
Discussion
27.

Refer to Exhibit 4. If a tax is placed on the product in this market consumer surplus is the area ?

A. D
B. A
C. A + B + E
D. A + B +C + D
Answer» C. A + B + E
Discussion
28.

Refer to Exhibit 4. If there is no tax placed on the product in this market, producer surplus is the area ?

A. A + B + E
B. D
C. C + F
D. C + D + F
Answer» E.
Discussion
29.

Refer to Exhibit 4. If a tax is placed on the product in this market tax revenue paid by the buyers is the area ?

A. B + C + E + F
B. B
C. B + C
D. A
Answer» C. B + C
Discussion
30.

Refer to Exhibit 4. If a tax is placed on the product in this market tax revenue paid by the sellers is the area ?

A. C + F
B. A
C. B
D. C
Answer» E.
Discussion
31.

Refer to Exhibit 4. If there is no tax placed on the produced in this market consumer surplus is the area ?

A. C + D + F
B. A
C. A + B + E
D. D + C + B
Answer» D. D + C + B
Discussion
32.

Refer to Exhibit 4. If a tax is placed on the product in this market total surplus is the area ?

A. A + B + C + D+ E +F
B. A + B + C + D
C. A + D
D. B + C + E + F
Answer» C. A + D
Discussion
33.

Refer to Exhibit 4. If a tax is placed on the product in this market, producer surplus is the area?

A. A + B + E
B. A + B + C + D
C. A
D. D
Answer» E.
Discussion
34.

Refer to Exhibit 4. If a tax is placed on the product in this market. deadweight loss is the area ?

A. B + C + E + F
B. E + F
C. B + C
D. A + B + C + D
Answer» C. B + C
Discussion
35.

If the sacrifice ratio is five, a reduction in inflation from 7 percent to 3 percent would require ?

A. a reduction in output of 20 percent
B. a reduction in output of 5percent
C. a reduction in output of 15 percent
D. a reduction in output of 35 percent
Answer» B. a reduction in output of 5percent
Discussion
36.

If the Pakistani government runs a budget surplus there is ?

A. an excess of government receipts over government spending.
B. an equality of government spending and receipts.
C. a surplus of government workers.
D. an excess of government spending over government receipts.
Answer» B. an equality of government spending and receipts.
Discussion
37.

If people have rational expectations a monetary policy contraction that is announced and is credible could ?

A. reduce inflation with little or no increase in unemployment
B. Increase inflation but would decrease unemployment by an unusually large amount
C. increase inflation with little or no decrease in unemployment
D. reduce inflation but it would increase unemployment by an unusually large amount
Answer» B. Increase inflation but would decrease unemployment by an unusually large amount
Discussion
38.

If, in the long run, people adjust their price expectations so that all prices and incomes move proportionately to an increase in the price level then the long-run Phillips curve ?

A. is vertical
B. is negatively sloped
C. has a slope that is determined by how fast people adjust their price expectations
D. is positively sloped
Answer» B. is negatively sloped
Discussion
39.

If a tax on a good is doubled the deadweight loss from the tax ?

A. doubles
B. stays the same
C. increase by a factor of four.
D. could rise or fall
Answer» D. could rise or fall
Discussion
40.

If a country’s policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate the long-run result would be ?

A. an increase in the level of output
B. a decrease in the unemployment rate
C. an increase in the rate of inflation
D. All of these answers
Answer» D. All of these answers
Discussion
41.

Deadweight loss is greatest when ?

A. supply is elastic, and demand is perfectly inelastic
B. demand is elastic, and demand is perfectly inelastic
C. both supply and demand are relatively inelastic
D. both supply and demand are relatively elastic
Answer» E.
Discussion
42.

An increase in expected inflation ?

A. shifts the short run Phillips curve downward and the unemployment inflation trade-off is less favorable.
B. shifts the short-run Phillips curve upward and the unemployment inflation trade-off is more favorable
C. Shift the short-run Phillips curve downward and the unemployment inflation trade-off is more favorable
D. Shifts the Short run Phillips curve upward and the unemployment inflation trade-off is less favorable
Answer» E.
Discussion
43.

An efficient tax ?

A. minimizes the administrative burden form the tax
B. does all the things describe in these answers
C. raises revenue at the smallest possible cost to taxpayers.
D. minimize the deadweight loss from the tax.
Answer» C. raises revenue at the smallest possible cost to taxpayers.
Discussion
44.

Along a short-run Phillips curve, ?

A. a higher rate of inflation is associated with a lower unemployment rate
B. a higher rate of growth in output is associated with a lower unemployment rate
C. a higher rate of inflation is associated with a higher unemployment rate
D. a higher rate of growth in output is associated with a higher unemployment rate.
Answer» B. a higher rate of growth in output is associated with a lower unemployment rate
Discussion
45.

According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment ?

A. The economy will experience an increase in inflation
B. The economy will experience a decrease in inflation
C. Inflation will be unaffected if price expectations are unchanging
D. None of these answers
Answer» B. The economy will experience a decrease in inflation
Discussion
46.

A tax system is regarded as horizontally equitable if ?

A. all taxpayers pay the same amount of tax
B. taxes on all goods are levied at the same rate
C. taxes are as low as possible
D. the system comprises only lump sum taxes
E. taxpayers with similar abilities to pay taxes pay the same amount
Answer» F.
Discussion
47.

A tax for which high income taxpayers pay a smaller fraction of their income than do low income taxpayers is known as ?

A. a proportional tax
B. a regressive tax
C. an equitable tax
D. a progressive tax
Answer» C. an equitable tax
Discussion
48.

A tax on petrol is likely to ?

A. generate a deadweight loss that is unaffected by the time period over which it is measured
B. cause a greater deadweight loss in the long run when compared to the short run
C. None of these answers
D. cause a greater deadweight loss in the short run when compared to the long run.
Answer» C. None of these answers
Discussion
49.

A progressive tax system is one where ?

A. marginal tax rates are high.
B. higher income taxpayers pay more taxes than do lower income taxpayers.
C. marginal tax rates are low.
D. higher income taxpayers pay a greater percentage of their income in taxes than do lower income taxpayers.
Answer» E.
Discussion
50.

A decrease the Price of foreign oil ?

A. Shifts the short-run Phillips curve downward and make the unemployment inflation trade-off less favorable
B. Shifts the short run Phillips curve upward and makes the unemployment inflation trade-off more favorable
C. Shifts the short run Phillips curve upward and makes the Unemployment inflation trade off more favorable
D. Shifts the short run Phillips curve downward and makes the unemployment inflation trade off more favorable
Answer» E.
Discussion