Economics MCQs

Option A: reduce aggregate risk

Option B: eliminate all risk

Option C: increase the standard deviation of the portfolio’s return

Option D: reduce idiosyncratic risk

Correct Answer: reduce idiosyncratic risk ✔

Option A: After Gull buys fire insurance, he begins to smoke cigarettes in bed.

Option B: None of these answers demonstrate moral hazard

Option C: Mahmood has been feeling poorly lately so he seeks health insurance

Option D: All of these answers demonstrate moral hazard

Correct Answer: After Gull buys fire insurance, he begins to smoke cigarettes in bed. ✔

Option A: None of these answers are true

Option B: All of these answers are true

Option C: They dislike bad things more than the like comparable good things

Option D: The utility they would lose from losing a Rs50 bet would exceed the utility they would gain from winning a Rs 50 bet

Correct Answer: All of these answers are true ✔

Option A: increases the present value of future returns from investment and increases investment

Option B: decreases the present value of future return from investment and decreases investment

Option C: decreases the present value of future returns from investment and increase investment

Option D: increases the present value of future returns from investment and decreases investment

Correct Answer: decreases the present value of future return from investment and decreases investment ✔

Option A: Rs400.00

Option B: Rs 104.00

Option C: Rs 121.67

Option D: Rs 123.98

Correct Answer: Rs 121.67 ✔

Option A: stock markets tend to be inefficient

Option B: all of these answers

Option C: index funds are able to buy undervalued stocks

Option D: actively managed funds trade more often and charge fees for their alleged expertise

Correct Answer: actively managed funds trade more often and charge fees for their alleged expertise ✔

Option A: shares are overvalued

Option B: people behave irrationally when choosing shares

Option C: markets reflect all available information in a rational way

Option D: shares are undervalued

Correct Answer: markets reflect all available information in a rational way ✔

Option A: None of these answers

Option B: An increase in expected dividends

Option C: A reduction in aggregate risk

Option D: A reduction in the interest rate

Correct Answer: All of these answers ✔

Option A: shares tend to be overvalued

Option B: the stock market is informationally efficient so share prices should follow a random walk

Option C: All of these answers

Option D: fundamental analysis is a valuable tool for increasing one’s returns from investing in shares

Correct Answer: the stock market is informationally efficient so share prices should follow a random walk ✔

Option A: lower return and a lower level or risk

Option B: lower return and a higher level of risk

Option C: higher return and a lower level or risk

Option D: higher return and a higher level of risk

Correct Answer: lower return and a lower level or risk ✔

Option A: uncertainty associated with the entire economy

Option B: uncertainty associated with specific companies

Option C: risk associated with adverse selection

Option D: risk associated with moral hazard

Correct Answer: uncertainty associated with specific companies ✔

Option A: increasing the rate of return within their portfolio

Option B: diversifying their portfolio

Option C: All of these answers help reduce risk

Option D: buying insurance

Correct Answer: increasing the rate of return within their portfolio ✔

Option A: one country will always have 2 percent more real GDP/person than the other

Option B: the standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth

Option C: the standard of living in the two countries will converge

Option D: Next year the country growing at 4 percent will have twice the GDP/person as the country growing at 2 percent

Correct Answer: the standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth ✔

Option A: Rs 43,456,838

Option B: Rs 53,406,002

Option C: Rs 34,538,902

Option D: Rs 39,604,682

Correct Answer: Rs 39,604,682 ✔

Option A: future value

Option B: fair value

Option C: present value

Option D: compound value

Correct Answer: present value ✔

Option A: that monetary policy affects aggregates demand

Option B: that markets do not clear quickly

Option C: that fiscal policy affects aggregate demand

Option D: of rational expectations.

Correct Answer: of rational expectations. ✔

Option A: it is difficult to measure the value of nominal GDP over time

Option B: there has been very little fluctuation in the money supply over time.

Option C: it is difficult to measure the demand for money over time

Option D: whether velocity is constant or not may depend on how the money supply is measure.

Correct Answer: whether velocity is constant or not may depend on how the money supply is measure. ✔

Option A: an equal percentage change in nominal DGP.

Option B: an equal percentage change in real GDP

Option C: a larger percentage change in nominal GDP

Option D: a smaller percentage change in nominal

Correct Answer: an equal percentage change in nominal DGP. ✔

Option A: assume that this year’s inflation rate will be the same as last year’s inflation rate

Option B: merely guess at the inflation rate.

Option C: assume that this year’s inflation rate will be equal to the average inflation rate over the past 10 years

Option D: Use all available information in forming their expectations.

Correct Answer: Use all available information in forming their expectations. ✔

Option A: Rational-expectations hypothesis

Option B: Passive-expectations hypothesis

Option C: adaptive expectations hypothesis

Option D: lagged-expectations hypothesis.

Correct Answer: Rational-expectations hypothesis ✔

Option A: fine tuning

Option B: monestarism

Option C: microeconomics foundations of macroeconomics

Option D: the classical model

Correct Answer: fine tuning ✔

Option A: the behaviour of trade unions.

Option B: the quantity of money

Option C: price and wages

Option D: the level of aggregate demand for goods and services

Correct Answer: the level of aggregate demand for goods and services ✔

Option A: the level of aggregate demand for goods and services.

Option B: prices and wages

Option C: interest rates

Option D: the quantity of money

Correct Answer: prices and wages ✔

Option A: new-Keynesian.

Option B: post-Keynesian.

Option C: classical economists.

Option D: Keynesian.

Correct Answer: classical economists. ✔

Option A: monetarists.

Option B: keynesians

Option C: post-keynesians

Option D: new classical school

Correct Answer: keynesians ✔

Option A: Keynesians

Option B: post-keynesians

Option C: monetarists

Option D: new classical school

Correct Answer: new classical school ✔

Option A: how unemployment could have persisted for so long during the Great Depression

Option B: The increase in the growth rate of real output in the 1950s

Option C: the stagflation of the 1970s

Option D: Why policy changes that are perceived as permanent have more of an impact on a person’s behaviour than policy changes that are viewed as temporary.

Correct Answer: the stagflation of the 1970s ✔

Option A: not constant and the quantity theory of money does hold.

Option B: constant and the quantity theory of money does hold.

Option C: not constant and the quantity theory of money does not hold.

Option D: constant and the quantity theory of money does not hold.

Correct Answer: not constant and the quantity theory of money does not hold. ✔

Option A: the fallacy of composition

Option B: negative entropy.

Option C: hysteresis.

Option D: ceteris paribus

Correct Answer: hysteresis. ✔

Option A: consistently overestimate the actual rate of inflation in the future.

Option B: are always correct

Option C: consistently underestimate the actual rate of inflation in the future

Option D: are correct on average, but are subject to errors that are distributed randomly

Correct Answer: are correct on average, but are subject to errors that are distributed randomly ✔

Option A: slump

Option B: inflation

Option C: stagflation

Option D: stagnation

Correct Answer: stagflation ✔

Option A: laissez-faire.

Option B: monetary policy

Option C: fine tuning

Option D: automatic stablisers

Correct Answer: fine tuning ✔

Option A: stagflation in the late 1970s

Option B: demand-pull inflation in the 1960s

Option C: low growth rates in the 1950s

Option D: The prolonged existence of high unemployment during the Great depression

Correct Answer: The prolonged existence of high unemployment during the Great depression ✔

Option A: requires fine tuning to reach full employment

Option B: can never deviate from full employment

Option C: will never be at full employment

Option D: is self-correcting.

Correct Answer: is self-correcting. ✔

Option A: market prices

Option B: sticky prices

Option C: fixed prices

Option D: regulatory prices

Correct Answer: sticky prices ✔

Option A: Poverty rates

Option B: food security index

Option C: change in the quantity of food demanded per capita

Option D: population growth

Correct Answer: population growth ✔

Option A: Production possibilities

Option B: entitlement

Option C: income distribution

Option D: egalitarianism

Correct Answer: Production possibilities ✔

Option A: War and bad governance

Option B: Corruption and mismanagement

Option C: Poor roads

Option D: Aid from developed nations

Correct Answer: Corruption and mismanagement ✔

Option A: cargil/Monsanto

Option B: ConAgra

Option C: Novartis/ADM

Option D: Procter & Gamble

Correct Answer: Procter & Gamble ✔

Option A: Rural development is the same as agricultural development

Option B: The agrarian community requires a full range of services such as schools merchants banks and so on

Option C: Household nonfarm income is uncorrelated to farm productivity and uncorrelated to farm productivity and household incomes in Kenya

Option D: China’s rural population receives little income from nonfarm income

Correct Answer: The agrarian community requires a full range of services such as schools merchants banks and so on ✔

Option A: An increase in the number of landless laborers

Option B: An increase in rural poverty

Option C: Women gain in decision making power

Option D: Workers nutrition is reduced

Correct Answer: Women gain in decision making power ✔

Option A: multitudinous latitudinous

Option B: latifundios, minifundios

Option C: feudum, nocere

Option D: grameen, repetto

Correct Answer: latifundios, minifundios ✔

Option A: I, II , III only

Option B: I, II and IV only

Option C: II, III and IV only

Option D: I, II, III and IV

Correct Answer: II, III and IV only ✔

Option A: society’s system of entitlement

Option B: an egalitarian income distribution

Option C: low poverty rates

Option D: society’s high Gini concentration

Correct Answer: an egalitarian income distribution ✔

Option A: I and II only

Option B: I and III only

Option C: III and IV only

Option D: II and III only

Correct Answer: III and IV only ✔

Option A: food sufficiency index

Option B: food security index

Option C: food self-intake index

Option D: food growth index

Correct Answer: food security index ✔

Option A: new biological chemical mechanical inputs in production

Option B: new technical and organizational knowledge from greater specialization

Option C: expanded markets for agricultural output

Option D: massive government intervention

Correct Answer: massive government intervention ✔

Option A: Yujiro Hayami

Option B: Raanan Weitz

Option C: Hans Singer

Option D: Tim Dyson

Correct Answer: Yujiro Hayami ✔

Option A: Such a farm is the most advanced

Option B: Such a farm usually emphasizes

Option C: Such a farm is labor intensive

Option D: Such a farm uses advanced technology and takes advantage of economies of scale.

Correct Answer: Such a farm is labor intensive ✔

Option A: The staple crop is the chief sources of food

Option B: labor is underutilized except for planting and harvesting seasons

Option C: On the traditional farm, output is always greater than consumption

Option D: cultivators farm only as much land as their

Correct Answer: cultivators farm only as much land as their ✔

Option A: abundant

Option B: scarce

Option C: neither

Option D: can’t tell without more information

Correct Answer: scarce ✔

Option A: The prices of trade goods to be lower than when there are no transportation costs

Option B: specialization to stop when the production costs of the trading partners equalize

Option C: The volume of trade to be less than when there are no transportation costs

Option D: The gains from trade to be greater than when there are no transportation costs

Correct Answer: The volume of trade to be less than when there are no transportation costs ✔

Option A: pursue free trade as a policy that leads to maximum global efficiency

Option B: grant subsidies to firms offering potential comparative advantage

Option C: provide loans to domestic workers in exporting industries

Option D: increase interest rates on loans made to firms in import-competing industries

Correct Answer: grant subsidies to firms offering potential comparative advantage ✔

Option A: everyone automatically gains from trade

Option B: The gainers from trade outnumber the losers from trade

Option C: The scarce factor necessarily gains from trade

Option D: None of the above

Correct Answer: The gainers from trade outnumber the losers from trade ✔

Option A: U.S exports are capital intensive relative to U.S imports

Option B: U.S imports are labor intensive relative to U.S exports

Option C: U.S exports are neither labor nor capital intensive

Option D: None of the above

Correct Answer: None of the above ✔

Option A: tastes and preferences

Option B: technology levels

Option C: factor indowments

Option D: Both A and B

Correct Answer: Both A and B ✔

Option A: countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other

Option B: countries with tend to specialize but not completely in their comparative advantage good

Option C: reciprocal demand leads to an equilibrium terms of trade by inducing change in both demand and supply

Option D: All of the above

Correct Answer: All of the above ✔

Option A: supply condition only

Option B: demand conditions only

Option C: supply and demand conditions

Option D: can’t tell without more information

Correct Answer: supply condition only ✔

Option A: research and development subsidies

Option B: loan guarantees

Option C: low interest rate loans

Option D: All of the above

Correct Answer: All of the above ✔

Option A: static, short run trade theory

Option B: dynamic long run trade theory

Option C: zero-sum theory of trade

Option D: negative-sum theory of trade

Correct Answer: dynamic long run trade theory ✔

Option A: factor endowments

Option B: factor intensities

Option C: technology

Option D: opportunity costs

Correct Answer: technology ✔

Option A: International trade affords producers monopoly power

Option B: National governments levy imports tariffs and quotas

Option C: Producing goods entails increasing costs

Option D: Economies of scale exist for producers

Correct Answer: Economies of scale exist for producers ✔

Option A: helps explain why some nations use industrial policy to support potentially competitive new firms

Option B: cannot explain strategic competition between firms such as Boeing and Airbus

Option C: Is another name for Ricardo’s comparative advantage theory?

Option D: None of the above

Correct Answer: helps explain why some nations use industrial policy to support potentially competitive new firms ✔

Option A: Factor endowment theory

Option B: Product life cycle theory

Option C: Economies of scale theory

Option D: Overlapping demand theory

Correct Answer: Economies of scale theory ✔

Option A: Paul Samuelson’s

Option B: Wolfgang Stolpher’s

Option C: Staffan Linder’s

Option D: Wassily Leontief’s

Correct Answer: D. Wassily Leontief’s ✔

Option A: increased

Option B: Decreased

Option C: Not changed

Option D: Any of the above

Correct Answer: Decreased ✔

Option A: Absolute advantage determines the distribution of the gains from trade

Option B: Comparative advantage determines the distribution of the gains from trade

Option C: The division of labor is limited by the size of the world market

Option D: A country exports goods for which its resource endowments are most suited

Correct Answer: A country exports goods for which its resource endowments are most suited ✔

Option A: Theory of factor endowments

Option B: Theory of overlapping demands

Option C: Economies of scale theory

Option D: Product life cycle theory

Correct Answer: Product life cycle theory ✔

Option A: Adam Smith

Option B: David Ricardo

Option C: John Stuart Mill

Option D: Eli Heckscher and Bertil Ohlin

Correct Answer: Eli Heckscher and Bertil Ohlin ✔

Option A: high transportation costs as a proportion of product value

Option B: different growing seasons of the year for agricultural products

Option C: product differentiation for good such as automobiles

Option D: high per capita incomes in exporting countries

Correct Answer: high per capita incomes in exporting countries ✔

Option A: is less than the cost of transporting it between them

Option B: is greater than the cost of transporting it between them equals the cost of transporting it between them

Option C: equals the cost of transporting it between them

Option D: more information in needed to answer this

Correct Answer: is greater than the cost of transporting it between them equals the cost of transporting it between them ✔

Option A: wages and rents should fall in Country A

Option B: wages and rents should rise in Country A

Option C: wages should rise and rents should fall in Country A

Option D: wages should fall and rents should raise in Country A

Correct Answer: wages should rise and rents should fall in Country A ✔

Option A: Adam smith

Option B: David Ricardo

Option C: Wassily Leontief

Option D: Eli Heckscher and Bertil Ohlin

Correct Answer: Eli Heckscher and Bertil Ohlin ✔

Option A: evidence against the Ricardi an model

Option B: evidence against the Heckscher-Ohl in model

Option C: support for the Ricardian model

Option D: support for the Heckcher Ohlin model

Correct Answer: evidence against the Heckscher-Ohl in model ✔

Option A: technologically efficient relative to the rest of the world

Option B: capital abundant relative to the rest of the world

Option C: labor abundant relative to the rest of the world

Option D: All of the above

Correct Answer: capital abundant relative to the rest of the world ✔

Option A: calculate the capital and labor required to produce $1 million of U.S exports and imports

Option B: calculate the labor productivity of America workers relative to foreign workers

Option C: calculate the capital productivity of American capital relative to foreign capital

Option D: All of the above

Correct Answer: calculate the capital and labor required to produce $1 million of U.S exports and imports ✔

Option A: Ricardian theory of comparative advantage

Option B: Heckscher Ohl in theory of comparative advantage

Option C: Linder theory of overlapping demand

Option D: All of the above

Correct Answer: Heckscher Ohl in theory of comparative advantage ✔

Option A: tastes

Option B: technology

Option C: factor/resource

Option D: opportunity cost

Correct Answer: factor/resource ✔

Option A: stop the process of product price equalization and factor price equalization before they are complete:

Option B: ensure that the process of product price equalization and factor price equalization are complete

Option C: eliminate all of the feasible gains from international trade

Option D: maximize all of the feasible gains from international trade

Correct Answer: stop the process of product price equalization and factor price equalization before they are complete: ✔

Option A: Stolpher-Samuelson theory

Option B: factor endowment theory

Option C: specific factors theory

Option D: overlapping demand theory

Correct Answer: specific factors theory ✔

Option A: intraindustry specialization and trade

Option B: interindustry specialization and trade

Option C: demand conditions underlying specialization and trade

Option D: income conditions underlying specialization and trade

Correct Answer: interindustry specialization and trade ✔

Option A: technology

Option B: advertising

Option C: factor endowments

Option D: both (a) and (c)

Correct Answer: factor endowments ✔

Option A: have no impact on patterns of international trade

Option B: have tended to make U.S steel companies more competitive internationally

Option C: can affect production costs and thus alter comparative advantages and trade patterns

Option D: have been eliminated by the nations participating in NAFTA

Correct Answer: can affect production costs and thus alter comparative advantages and trade patterns ✔

Option A: Explains why the United States might export autos and import clothing

Option B: Explains why the United States might export and import differentiated versions of the same product such as different types of autos

Option C: Assumes that transport costs are very low or do not exist

Option D: ignores seasonal considerations for agricultural goods

Correct Answer: Explains why the United States might export and import differentiated versions of the same product such as different types of autos ✔

Option A: increase in the volume of trade

Option B: Smaller gain from trade

Option C: Decline in the income of home producers

Option D: Decrease in the level of specialization in production

Correct Answer: increase in the volume of trade ✔

Option A: similar endowments of natural resources

Option B: similar levels of technology

Option C: similar per-capita incomes

Option D: similar wage levels

Correct Answer: similar per-capita incomes ✔

Option A: Devote excessive amounts of resources to agricultural production

Option B: Devote insufficient amounts of resources to agricultural production

Option C: Export products that are land-intensive

Option D: Import products that are land-intensive

Correct Answer: Export products that are land-intensive ✔

Option A: Tastes and preferences

Option B: Expectations of future interest rate levels

Option C: Per-capita income levels

Option D: Labor productivities

Correct Answer: Per-capita income levels ✔

Option A: How economies of scale make possible a larger variety of products in international trade

Option B: A transfer of wealth from domestic consumer to domestic producer as the result of trade

Option C: How a natural monopoly is forced to behave more competitively with international trade

Option D: How a natural monopoly is forced to behave less competitively with international trade

Correct Answer: How economies of scale make possible a larger variety of products in international trade ✔

Option A: Economies of large-scale production

Option B: Relative abundance of various resources

Option C: Relative costs of labor

Option D: Research and development expenditures

Correct Answer: Relative abundance of various resources ✔

Option A: introducing the reform package at once to ensure that it became too late and costly to reverse the reforms

Option B: agricultural reform rather than industrial reforms to overcome food insecurity

Option C: the creation of a small-scale private sector ans small independent banks

Option D: attempts to gradually remake institutions

Correct Answer: introducing the reform package at once to ensure that it became too late and costly to reverse the reforms ✔

Option A: III only

Option B: IV only

Option C: I, II and IV only

Option D: None of these

Correct Answer: IV only ✔

Option A: centralized firms

Option B: government oligopolies

Option C: market economies

Option D: public enterprises

Correct Answer: public enterprises ✔

Option A: produced by the three largest firms in the industry

Option B: produced in cement, machine tools and steel industries

Option C: and labor intensities relative to labor productivity

Option D: as a percentage of production and marketing

Correct Answer: produced by the three largest firms in the industry ✔

Option A: special economic zones

Option B: liberalized trade monopoly zones

Option C: Economic Union zones

Option D: Communist free trade areas

Correct Answer: special economic zones ✔

Option A: contractionary monetary and fiscal policies

Option B: currency devaluation

Option C: long-run institutional and structural economic change

Option D: short term-adjustment with a human face

Correct Answer: long-run institutional and structural economic change ✔

Option A: I and II only

Option B: III and IV only

Option C: I, II and III only

Option D: I, II and IV only

Correct Answer: I, II and IV only ✔

Option A: S – I = X = M

Option B: S + I = X + M

Option C: S = I – (X+M)

Option D: S-I = X/M

Correct Answer: A. S – I = X = M ✔

Option A: U.S

Option B: OECD

Option C: IMF

Option D: OPEC

Correct Answer: IMF ✔

Option A: Gosplan

Option B: Gosagroprom

Option C: nomenklatura system

Option D: Parastatals

Correct Answer: nomenklatura system ✔