CB2 – MCQ

1. Which of the following best illustrates the concept of opportunity cost in business decision-making?

A) A company decides to produce more of Product A due to an increase in demand.

B) A firm reduces its workforce to cut costs.

C) A business chooses to invest in new technology instead of expanding its current product line.

D) A company hires new employees to meet increased production demands.

2. In a monopolistically competitive market, which factor is least likely to influence a firm's decision
regarding its location?

A) Access to unique raw materials

B) Proximity to a cluster of competitors

C) Government regulations

D) Perfect information about market prices

3. Which of the following statements best captures the core principle of the Classical school of
economic thought regarding market regulation?

A) The state should actively intervene to correct market failures and ensure economic stability.

B) Markets are self-regulating, and government intervention should be minimal, relying instead on
the "invisible hand."

C) Monetary policy is the primary tool for managing economic cycles and inflation.

D) Economic outcomes are primarily determined by aggregate demand, not supply.

4. How does the Austrian School’s view on business cycles fundamentally differ from the Keynesian
perspective?

A) The Austrian School believes business cycles are a natural and inevitable part of economic systems,
while Keynesians see them as preventable through demand management.

B) Austrians attribute business cycles to government intervention and artificial manipulation of

interest rates, whereas Keynesians believe they result from fluctuations in aggregate demand.

C) The Austrian School focuses on the importance of central planning to manage cycles, while
Keynesians emphasize free-market solutions.
 D) The Austrian School believes that business cycles are driven by consumer preferences, while
Keynesians argue they are driven by supply shocks.

5. Which aspect of Marxian socialism is most directly opposed to the principles of neoclassical
economics?

A) The reliance on marginal utility to determine value.

B) The emphasis on class struggle and the labor theory of value.

C) The belief in rational expectations and efficient markets.

D) The focus on individual decision-making and utility maximization.

6. What is the primary criticism that Monetarists have regarding Keynesian economic policies?

A) They argue that Keynesian policies fail to consider the importance of government spending in
stabilizing the economy.

B) They criticize the Keynesian focus on supply-side factors and neglect of demand-side management.

C) Monetarists contend that Keynesian policies overestimate the effectiveness of fiscal policy and
neglect the long-term impacts of monetary policy on inflation.

D) They believe Keynesian policies do not adequately account for the role of technological innovation
in economic growth.

7. How do Post-Keynesian economists fundamentally differ from Neo-Keynesian economists in their

understanding of economic instability?

A) Post-Keynesians reject the notion of price and wage stickiness and emphasize rational expectations
in market adjustments.

B) Neo-Keynesians believe in the fundamental unpredictability of economic behavior due to

uncertainty, while Post-Keynesians emphasize microeconomic foundations for policy formulation.

C) Post-Keynesians emphasize the roles of uncertainty, financial instability, and income distribution,
while Neo-Keynesians focus on incorporating Keynesian principles into formal economic models.

D) Neo-Keynesians advocate for supply-side management, while Post-Keynesians advocate for

demand-side interventions.

8. Which of the following best describes the Austrian School's critique of central banking policies?

A) Central banks are necessary to stabilize economies during periods of recession and inflation.
 B) Central banking policies distort market signals, leading to malinvestment and artificial booms that
result in economic busts.

C) Central banks should focus on direct fiscal interventions to regulate the money supply.

D) The Austrian School supports the use of central banking policies to target low inflation and full
employment.

9. Which statement best explains the role of the price mechanism in a competitive market?
A) It solely determines the maximum price consumers are willing to pay for a good or service.
B) It acts as a signal for resource allocation, directing resources toward their most valued uses without
requiring central planning.
C) It ensures that all consumers have equal access to goods and services regardless of their income
levels.
D) It minimizes the effects of externalities on market equilibrium prices.

10. How does a simultaneous increase in both demand and supply affect the equilibrium price and
quantity in a perfectly competitive market?

A) Equilibrium price will increase, but the equilibrium quantity will remain unchanged.

B) Equilibrium quantity will decrease, while the change in equilibrium price will depend on the
magnitude of shifts.

C) Equilibrium quantity will increase, while the change in equilibrium price will depend on the relative
magnitudes of shifts in demand and supply.

D) Both equilibrium price and quantity will decrease.

11. Which factor is most likely to cause a leftward shift in the supply curve for a product in a competitive
market?

A) An improvement in technology that reduces production costs.

B) A decrease in the number of suppliers in the market.

C) A fall in the price of a substitute product.

D) An increase in consumer income levels.

12. What is the likely outcome if there is a decrease in consumer preference for a good in a perfectly
competitive market?

A) The supply curve will shift to the right, causing a decrease in equilibrium price.
 B) The demand curve will shift to the left, leading to a lower equilibrium price and quantity.

C) The market will experience excess demand, pushing the price upward.

D) The supply curve will shift to the left, causing a decrease in equilibrium quantity.

13. If a government imposes a price ceiling below the equilibrium price in a competitive market, what
is the most likely outcome?

A) A surplus of the good or service.

B) An increase in production due to higher demand.
C) A shortage of the good or service, as quantity demanded exceeds quantity supplied.
D) Market equilibrium is unaffected, as the price ceiling is not binding.

14. Which scenario best describes the market reaction when both demand and supply decrease, but
the decrease in demand is greater than the decrease in supply?

A) Equilibrium price will decrease, and equilibrium quantity will increase.

B) Equilibrium price will increase, and equilibrium quantity will decrease.

C) Equilibrium price will decrease, and equilibrium quantity will decrease.

D) Equilibrium price will remain constant, but equilibrium quantity will decrease.

15. Which of the following scenarios best illustrates the concept of income elasticity of demand being
negative?

A) A 10% increase in consumer income leads to a 5% increase in the demand for luxury cars.

B) A 15% decrease in consumer income causes a 10% increase in the demand for public transportation
services.

C) A 20% increase in consumer income results in a 10% increase in demand for normal goods.

D) A 5% increase in consumer income has no effect on the demand for a particular good.

16. If the price elasticity of supply for a product is 1.5, what would be the expected change in quantity
supplied if the price decreases by 20%?

A) Quantity supplied will decrease by 30%.

B) Quantity supplied will decrease by 13.3%.

C) Quantity supplied will increase by 30%.

D) Quantity supplied will remain unchanged.

17. Which factor is most likely to make the price elasticity of demand for a good more inelastic in the
short run but more elastic in the long run?

A) The good is a necessity with few substitutes.

B) The good is a luxury item with many close substitutes.

C) The market for the good is highly competitive with price-sensitive consumers.

D) Consumers' preferences for the good change rapidly over time.

18. How do firms strategically use advertising to alter the price elasticity of demand for their products?

A) By advertising more frequently, firms can shift the demand curve left, making it more elastic.

B) By creating a perception of uniqueness or brand loyalty, firms make the demand for their products
more inelastic.

C) By reducing advertising expenditure, firms can increase their profits by increasing the elasticity of
demand.

D) By increasing price sensitivity, firms use advertising to make the demand more elastic.

19. When is a firm's ability to predict future market movements likely to be most limited, and how
might this affect its decision-making process?

A) During periods of high market volatility, firms are likely to reduce output to minimize risk.

B) In a stable market environment, firms are less cautious about investing in new projects.

C) During times of predictable economic growth, firms avoid long-term contracts.

D) In a perfectly competitive market, firms can accurately predict future prices and adjust their
production accordingly

20. If two indifference curves intersect, what does this imply about the consumer's preferences, and
why is this inconsistent with the theory of consumer choice?

A) It implies the consumer has irrational preferences; this is inconsistent because rational consumers
must have consistent and transitive preferences.

B) It indicates that the consumer has a preference for one good over another; this is inconsistent
because preferences must be complete.

C) It suggests that the consumer has constant marginal utility for two goods; this is inconsistent
because indifference curves should be convex.
 D) It suggests that the consumer's income has no effect on utility; this is inconsistent because
indifference curves reflect different levels of utility.

21. Which concept from behavioral economics can explain why consumers might make choices that
deviate from the predictions of traditional rational choice theory?

A) The marginal rate of substitution (MRS) explains deviations in consumer choices due to income
effects.

B) The concept of bounded rationality accounts for decisions made with limited information and
cognitive biases, leading to suboptimal choices.

C) The budget constraint theory explains deviations due to changes in consumer income and prices.

D) The indifference curve analysis explains deviations due to shifts in consumer preferences over time.

22. Under what circumstances might a consumer's utility function violate the assumption of convexity,
and how would this affect the shape of indifference curves?

A) When a consumer exhibits perfect substitutes preferences, resulting in linear indifference curves.

B) When a consumer has diminishing marginal utility for all goods, resulting in convex indifference
curves.

C) When a consumer shows a strong preference for variety, leading to circular indifference curves.

D) When a consumer's income elasticity is zero, leading to vertical indifference curves.

23. How does the law of diminishing marginal returns affect the shape of the short-run production
function?

A) It causes the production function to be linear since marginal returns increase at a constant rate.

B) It results in a concave downward slope, reflecting decreasing marginal physical product after a
certain point of input usage.

C) It creates a convex upward curve as marginal returns initially decrease and then increase.

D) It does not affect the production function in the short run since only variable costs are relevant.

24. Which of the following conditions must hold true for a firm to achieve profit maximization in a
perfectly competitive market?

A) Marginal cost must equal marginal revenue, and the price must be higher than average variable
cost.
 B) Total cost must be minimized, and total revenue must exceed average total cost.

C) Average total cost must equal average variable cost, and marginal cost must be decreasing.

D) Marginal revenue must exceed marginal cost, and price must equal average total cost.

25. What is the primary difference between ‘economies of scale’ and ‘economies of scope,’ and how do
they affect a firm's cost structure?

A) Economies of scale relate to cost reductions from increasing production levels, while economies of
scope arise from producing a variety of products; both lead to a decrease in marginal costs.

B) Economies of scale reduce fixed costs per unit by expanding production, whereas economies of
scope reduce variable costs per unit by leveraging marketing synergies.

C) Economies of scale decrease total costs by standardizing output, while economies of scope increase
total costs by diversifying input usage; both lead to increasing returns to scale.

D) Economies of scale relate to expanding production, while economies of scope involve technological
improvements; both increase average costs.

26. At what point does a firm reach its ‘shut-down’ point in the short run, and why is this point critical
for decision-making?

A) When total revenue equals total costs, indicating no economic profit.

B) When marginal revenue equals marginal cost, suggesting the firm should not increase production.

C) When total revenue equals total variable costs, as the firm cannot cover its fixed costs and should
shut down temporarily.

D) When price equals average total cost, signaling the need to exit the market.

27. In a perfectly competitive market, which of the following conditions ensures that firms cannot
sustain supernormal profits in the long run?

A) The presence of high fixed costs and increasing marginal costs.

B) The existence of barriers to entry that prevent new firms from entering the market.

C) Free entry and exit of firms, driving the price to the level of average cost.

D) Differentiation among products leading to unique pricing strategies.

28. Under monopoly, which factor primarily allows a firm to maintain supernormal profits in both the
short run and the long run?
 A) Elasticity of demand for the product and economies of scale.

B) The firm’s ability to perfectly price discriminate between consumers.

C) The existence of significant barriers to entry that prevent new competitors from entering the
market.

D) The presence of constant marginal cost and decreasing average cost.

29. Which of the following is the most likely outcome if a monopolist faces a contestable market where
entry barriers are low, but sunk costs are high?

A) The monopolist sets a price equal to marginal cost to deter entry.

B) The monopolist continues to set prices above marginal cost, as high sunk costs discourage potential
entrants.

C) The monopolist abandons its market share, anticipating aggressive price competition.

D) The monopolist engages in predatory pricing to eliminate potential competitors.

30. How does the price elasticity of demand influence the degree of market power held by a
monopolist, and what is the implication for pricing strategy?

A) A higher elasticity of demand increases market power, allowing the monopolist to raise prices
without losing customers.

B) Lower elasticity of demand decreases market power, forcing the monopolist to lower prices to
maintain market share.

C) Lower elasticity of demand increases market power, enabling the monopolist to set prices higher
above marginal cost.

D) Higher elasticity of demand reduces market power, encouraging the monopolist to set prices equal
to marginal cost.

31. Which of the following best explains why firms in monopolistic competition only make normal
profits in the long run?

A) Increasing returns to scale lead to reduced average costs over time.

B) Product differentiation allows firms to retain loyal customers despite new entrants.

C) Free entry and exit lead to increased competition, driving economic profits to zero.

D) Firms face constant marginal costs, which prevent supernormal profit.

32. In an oligopoly, which condition is most likely to facilitate tacit collusion among firms?

A) A large number of firms with diverse product offerings.

B) High transparency in pricing and market conditions.

C) Frequent changes in consumer demand and preferences.

D) Significant differences in cost structures among firms.

33. How does the concept of Nash equilibrium apply to strategic decision-making in an oligopolistic
market?

A) It represents a situation where all firms maximize joint profits by forming a cartel.

B) It is a state where no firm has any incentive to change its strategy given the strategies of other
firms.

C) It is achieved when firms undercut each other’s prices until they reach marginal cost pricing.

D) It describes a scenario where firms always act in the consumer’s best interest to increase market
demand.

34. What role does game theory play in understanding the behavior of firms in an oligopolistic market?

A) It provides a framework for firms to predict market demand and supply curves accurately.

B) It helps firms understand and anticipate the likely reactions of competitors to their strategies.

C) It outlines the process of natural monopolies forming in markets with high fixed costs.

D) It promotes the idea that all firms will collude to maximize profits.

35. Which factor is least likely to encourage collusion among oligopolistic firms?

A) A high level of market concentration with few firms.

B) An absence of legal restrictions against collusion.

C) High barriers to entry that protect colluding firms from new entrants.

D) A high degree of product differentiation leading to low cross-elasticity of demand.

36. Under what conditions is third-degree price discrimination most likely to increase a firm's total
profit?

A) When the firm operates in a perfectly competitive market with homogeneous products.
 B) When the firm faces different price elasticities of demand in separate market segments.

C) When the firm can fully eliminate all competition in the market.

D) When all consumers have the same willingness to pay for the product.

37. How does the concept of cross-elasticity of demand influence pricing strategies for multiple
products?

A) It allows firms to raise the prices of all products simultaneously without affecting demand.

B) It helps firms understand how changes in the price of one product affect the demand for another
product.

C) It ensures that each product is priced at its average cost plus a fixed markup.

D) It is used primarily for setting prices in monopolistic competition but not in oligopolies.

38. What is the primary objective of skimming pricing during the introduction phase of a product's life
cycle?

A) To achieve the highest market penetration by setting low initial prices.

B) To recoup development costs quickly and establish a premium market position.

C) To undercut competitors and create a monopoly in the new market.

D) To maximize revenue by attracting price-sensitive customers immediately.

39. In which of the following scenarios is penetration pricing most likely to be an effective strategy?

A) When the firm wants to segment the market by willingness to pay.

B) When the firm wants to enter a highly competitive market and build market share rapidly.

C) When the firm is the only supplier of a unique product with inelastic demand.

D) When the product is in the decline stage of its life cycle.

40. How does second-degree price discrimination work in practice, and why might it be preferred over
first-degree discrimination in some markets?

A) It involves charging each consumer the maximum they are willing to pay, which requires less
information than first-degree discrimination.

B) It offers discounts for bulk purchases or different product versions, which can increase sales
without needing individual consumer information.
 C) It separates markets by region and charges different prices, which is easier to enforce legally.

D) It provides a uniform price for all consumers, reducing administrative costs compared to first-
degree discrimination.

41. Why might a government prefer to use a tax rather than regulation to address a negative
externality, such as pollution?

A) Taxes provide a clearer signal to firms about the cost of pollution and allow flexibility in how to
reduce emissions.

B) Taxes are easier to enforce than regulation and do not require monitoring.

C) Taxes reduce government revenue, which is a goal in situations involving negative externalities.

D) Taxes completely eliminate the negative externality by setting a price for its eradication.

42. Which of the following best explains why a free market fails to achieve the optimal amount of
research and development (R&D)?

A) Firms have complete information about all future benefits of R&D, but choose not to invest.

B) The public nature of knowledge created by R&D leads to positive externalities that firms cannot
fully capture.

C) Free markets allocate resources efficiently in the short run but not in the long run.

D) Competition in a free market discourages collaboration between firms, which is essential for R&D.

43. Which form of government intervention is most likely to correct the inefficiencies caused by a
positive externality, such as education?

A) Imposing a tax on education providers.

B) Providing subsidies or grants to lower the cost of education for consumers.

C) Implementing regulations that limit the number of education providers.

D) Restricting access to education based on market demand.

44. Which factor limits the effectiveness of competition policy in a rapidly evolving technological
market?

A) The time lag between the detection of anti-competitive practices and their regulation.

B) The ability of firms to hide monopolistic practices through innovation.

 C) The use of subsidies and grants by governments to encourage technological advancement.

D) The inherent market power gained by small firms in high-tech markets.

45. In the context of the Aggregate Demand-Aggregate Supply (AD-AS) model, which of the following
factors would most likely shift the Short-Run Aggregate Supply (SRAS) curve to the left?

A) A decrease in corporate tax rates

B) An increase in raw material prices

C) A reduction in government regulation

D) An increase in household savings rates

46. Which method of measuring GDP involves summing the total value added at each stage of
production for all goods and services within an economy?

A) The Expenditure Approach

B) The Income Approach

C) The Output Approach

D) The Nominal Approach

47. In a simple circular flow of income model, what is the role of financial markets in maintaining
equilibrium within the economy?

A) They facilitate the exchange of goods and services between households and firms.

B) They balance savings and investment flows by channeling household savings to firms.

C) They ensure the government budget is balanced by managing public debt.

D) They control the supply of money in the economy by regulating interest rates.

48. If a government aims to achieve both low inflation and low unemployment, which of the following
trade-offs is it most likely to encounter, according to the Phillips Curve?

A) A trade-off between exchange rate stability and external balance

B) A trade-off between inflation and output growth

C) A trade-off between inflation and unemployment

D) A trade-off between public debt and fiscal deficit

49. Which of the following best explains why the aggregate demand (AD) curve slopes downward in a
macroeconomic model?

A) Because as the price level decreases, firms are willing to produce more goods and services.

B) Because as the price level decreases, the real value of money balances increases, stimulating
consumption and investment.

C) Because as the price level increases, net exports rise due to cheaper domestic goods.

D) Because as the price level increases, government spending automatically decreases.

50. Which of the following scenarios best illustrates the difference between actual growth and
potential growth in an economy?

A) A country expands its infrastructure, leading to increased GDP per capita.

B) A country achieves higher output by utilizing its existing resources more efficiently.

C) A country experiences growth due to technological advancements while its maximum productive
capacity remains unchanged.

D) A country reduces trade barriers, leading to an increase in both exports and imports.

51. Which factor is most likely to result in different economic growth rates among nations with
otherwise similar economic structures?

A) Differences in natural resource endowments

B) Variations in monetary policy frameworks

C) Differences in access to international markets

D) Differences in levels of technological innovation and adoption

52. Which of the following is a primary reason why the relationship between economic growth and
environmental sustainability can often be conflictual?

A) Economic growth typically leads to increased financial stability, which in turn decreases
environmental degradation.

B) Economic growth often prioritizes short-term gains in output over the long-term health of natural
resources.

C) Environmental sustainability always requires a reduction in consumption levels across all sectors.
 D) Environmental regulations usually reduce inflation and increase employment, thus slowing
economic growth.

53. What is the most likely reason for economies to experience periods of boom followed by periods of
recession, according to the theory of business cycles?

A) Changes in global oil prices that alter consumption and investment behavior.

B) Inefficiencies in the allocation of resources due to government intervention.

C) Fluctuations in aggregate demand and supply caused by changes in consumer and investor
confidence.

D) Long-term declines in productivity growth due to demographic shifts.

54. Which type of unemployment is most likely to persist during a period of economic recession, and
why does it pose a significant cost to the economy?

A) Frictional unemployment, due to workers transitioning between jobs.

B) Structural unemployment, due to a mismatch between workers' skills and job requirements.

C) Cyclical unemployment, due to reduced aggregate demand during a downturn.

D) Seasonal unemployment, due to fluctuations in demand for labor in certain industries.

55. The Phillips Curve suggests a trade-off between unemployment and inflation. Under which of the
following conditions is this relationship most likely to break down?

A) When the economy is experiencing hyperinflation.

B) When supply-side shocks, such as a sharp rise in oil prices, occur.

C) When the government implements contractionary fiscal policy.

D) When there is a period of sustained economic growth.

56. Which of the following best captures the impact of globalization on business operations in
multinational companies?

A) It leads to the standardization of all business processes across global markets.

B) It increases competition, encourages innovation, and requires adaptation to diverse regulatory

environments.

C) It allows companies to avoid domestic taxation by relocating their headquarters.

 D) It limits the ability of firms to access low-cost labor and resources in foreign countries.

57. Which of the following factors is considered the most significant driver of globalization in recent
decades?

A) Increased tariffs and trade barriers

B) Advances in technology and communication

C) Decreased investment in human capital

D) Decline in multinational corporations

58. Which economic theory best supports the benefits of specialization in international trade?

A) Theory of Comparative Advantage

B) Theory of Absolute Advantage

C) Heckscher-Ohlin Theory

D) Stolper-Samuelson Theory

59. Which of the following is the most compelling argument for trade restriction and protection of
domestic industries?

A) To prevent inflation caused by an excessive inflow of foreign goods.

B) To maintain competitiveness and market dominance in global markets.

C) To protect infant industries and allow them to grow without facing foreign competition.

D) To balance the budget deficit and reduce national debt.

60. What was a primary factor contributing to the severity of the 2008 banking crisis and the
subsequent Great Recession?

A) High inflation rates driven by excessive government spending

B) Excessive leverage and risk-taking by financial institutions combined with inadequate regulatory
oversight

C) A sudden increase in international trade barriers and tariffs

D) A large-scale deflationary shock caused by a global drop in consumer demand

61. Which of the following best explains the concept of the money multiplier effect in the context of
the banking system?

A) The process by which central banks directly control the total money supply by setting reserve
requirements

B) The mechanism through which an initial deposit in a bank leads to a greater overall increase in the
money supply due to fractional reserve banking

C) The inverse relationship between the amount of money in circulation and the inflation rate

D) The automatic adjustment of interest rates by banks in response to changes in central bank policy

62. What is the primary role of central banks in managing the money supply and stabilizing the
economy?

A) To directly control the prices of goods and services through price controls

B) To set interest rates and regulate the banking system to influence money supply and economic
stability

C) To manage government budgets and fiscal deficits through taxation and spending policies

D) To guarantee returns on investments made by private financial institutions

63. Which factor is least likely to affect the growth of the money supply in an economy?

A) Changes in the central bank's policy interest rates

B) Variations in the reserve requirements set by the central bank

C) Fluctuations in the stock market and asset prices

D) The volume of deposits and loans generated by commercial banks

64. How does a central bank’s policy of "quantitative easing" typically influence the economy?

A) By increasing the interest rates to reduce inflationary pressures

B) By purchasing government securities to increase the money supply and lower interest rates

C) By implementing stricter regulations on bank lending to reduce credit risk

D) By decreasing government spending to control budget deficits

65. Which of the following best describes the effectiveness of monetary policy during the 2008 financial
crisis?
 A) Monetary policy was highly effective in immediately restoring economic stability and growth.

B) Monetary policy was initially constrained by low interest rates and was complemented by
unconventional measures such as quantitative easing.

C) Monetary policy was ineffective due to high levels of inflation and a lack of liquidity in the financial
system.

D) Monetary policy had a limited impact because fiscal policy measures were more critical in
addressing the recession.

66. What is the primary mechanism through which changes in interest rates affect the broader
economy?

A) By altering the exchange rates to influence international trade flows.

B) By impacting the levels of consumer and business borrowing and spending.

C) By directly controlling wage levels and employment rates.

D) By modifying government taxation policies to influence disposable income.

67. How does the relationship between money and interest rates generally function in the context of
monetary policy?

A) Higher money supply leads to higher interest rates due to increased demand for money.

B) Lower money supply typically leads to higher interest rates, while higher money supply generally
lowers interest rates.

C) Money supply and interest rates are unrelated as they are determined by separate market forces.

D) Interest rates are set independently of money supply changes, focusing solely on inflation control.

68. How do macroeconomic policies impact businesses, particularly in terms of their investment and
operational decisions?

A) By directly controlling business profits and setting prices for goods and services.

B) By influencing aggregate demand, interest rates, and economic conditions that affect business
investment and operational costs.

C) By imposing regulations that limit business expansion and investment opportunities.

D) By providing targeted subsidies and tax incentives specifically for business growth.

69. In the aggregate demand-expenditure model, how is the equilibrium level of income determined?
 A) By the intersection of aggregate demand and long-run aggregate supply.

B) By the intersection of aggregate demand and aggregate supply in the short run, where planned
expenditure equals actual output.

C) By the level of government spending relative to private investment in the economy.

D) By the balance between exports and imports in the economy.

70. How does the multiplier effect operate within the Keynesian framework, and how is its value
calculated?

A) The multiplier effect amplifies initial changes in government spending or investment, calculated as
1 divided by the marginal propensity to save.

B) The multiplier effect amplifies changes in money supply, calculated as the ratio of the total increase
in output to the initial increase in investment.

C) The multiplier effect dampens changes in consumption, calculated as the marginal propensity to
consume divided by the marginal tax rate.

D) The multiplier effect reflects the decrease in unemployment relative to changes in aggregate
demand, calculated as the ratio of aggregate supply to aggregate demand.

71. How does the relationship between unemployment and inflation, often referred to as the Phillips
Curve, behave in the short run versus the long run?

A) The Phillips Curve shows a stable inverse relationship between unemployment and inflation in both
the short run and long run.

B) The Phillips Curve indicates a stable trade-off between unemployment and inflation only in the
short run, but not in the long run.

C) The Phillips Curve reflects a direct relationship between unemployment and inflation i both the
short run and long run.

D) The Phillips Curve is flat in the long run, indicating no trade-off between unemployment and
inflation.

72. According to the Monetarist view, what primarily determines the level of business activity in the
economy?

A) Government fiscal policy and intervention.

B) The money supply and its rate of growth.

C) Changes in aggregate demand driven by consumer and business confidence.

 D) Fluctuations in aggregate supply and production costs.

73. How does a policy of targeting inflation affect the relationship between unemployment and
inflation?

A) It creates a stable trade-off between unemployment and inflation in both the short and long run.

B) It can reduce inflation but may lead to higher unemployment in the short run due to tighter
monetary policy.

C) It eliminates the trade-off between unemployment and inflation by using fiscal policy to stabilize
the economy.

D) It has no impact on the relationship between unemployment and inflation, as it only addresses
long-term growth.

74. What determines the course of a business cycle and its turning points according to the Monetarist
and New Classical schools?

A) Fluctuations in aggregate demand driven by fiscal policy.

B) Changes in aggregate supply due to technological advancements and supply shocks.

C) Variations in the money supply and its impact on inflation and output.

D) Government intervention and regulatory policies affecting business cycles.

75. In what way do the Monetarist and New Classical schools differ in their view on the causes of the
business cycle compared to Keynesian economics?

A) Monetarist and New Classical schools focus on aggregate demand shocks, while Keynesian
economics emphasizes aggregate supply shocks.

B) Monetarist and New Classical schools attribute the business cycle to money supply fluctuations,
while Keynesian economics focuses on fiscal policy and aggregate demand.

C) Monetarist and New Classical schools believe that business cycles are entirely driven by external
shocks, while Keynesian economics ignores external factors.

D) Monetarist and New Classical schools see business cycles as mainly driven by irrational behavior
and speculative bubbles, unlike Keynesian economics.

76. How does an increase in the money supply affect the level of business activity in the short run
according to the liquidity preference framework?

A) It decreases business activity by reducing the real money balances available for transactions.
 B) It increases business activity by lowering interest rates, which stimulates investment and
consumption.

C) It has no effect on business activity as the increase in money supply is neutralized by higher interest
rates.

D) It decreases business activity by increasing the cost of borrowing due to higher interest rates.

77. What is the effect of a rise in interest rates on the level of business investment and economic
output, as per the Keynesian perspective?

A) A rise in interest rates increases business investment and economic output due to higher returns
on investments.

B) A rise in interest rates decreases business investment and economic output due to higher
borrowing costs.

C) A rise in interest rates has no significant effect on business investment or economic output.

D) A rise in interest rates increases business investment but decreases economic output.

78. In the context of the IS-LM model, what is the expected impact of an increase in the money supply
on output and prices in the short run?

A) An increase in the money supply leads to a rise in output and a decrease in prices.

B) An increase in the money supply leads to a rise in output with no effect on prices.

C) An increase in the money supply leads to a rise in both output and prices.

D) An increase in the money supply has no impact on output but leads to a decrease in prices.

79. How do changes in the money supply influence aggregate demand and its components in the short
run?

A) Changes in the money supply only affect aggregate demand through changes in consumer
spending.

B) Changes in the money supply affect aggregate demand through investment, consumer spending,
and net exports.

C) Changes in the money supply primarily influence aggregate demand through changes in
government spending.

D) Changes in the money supply do not affect aggregate demand but rather only impact the aggregate
supply.
80. What role does the central bank play in influencing interest rates and business activity through
monetary policy?

A) The central bank sets interest rates directly and adjusts the money supply to influence business
activity.

B) The central bank controls fiscal policy to indirectly influence interest rates and business activity.

C) The central bank influences business activity by setting tax rates and government spending.

D) The central bank has no significant role in influencing interest rates or business activity.

81. How does an increase in the money supply affect the real money balances and what subsequent
effect does this have on interest rates according to the money market equilibrium?

A) An increase in the money supply raises real money balances, which increases interest rates due to
higher demand for money.

B) An increase in the money supply raises real money balances, which lowers interest rates due to
reduced demand for money.

C) An increase in the money supply lowers real money balances, which raises interest rates due to
increased money demand.

D) An increase in the money supply lowers real money balances, which lowers interest rates due to
increased money demand.

82. How do supply-side policies generally impact businesses and the economy in terms of productivity
and growth?

A) Supply-side policies typically decrease productivity in the short run but increase it in the long run.

B) Supply-side policies aim to increase productivity and economic growth by enhancing the efficiency
of production and labor markets.

C) Supply-side policies focus on reducing business costs immediately without impacting long-term
productivity.

D) Supply-side policies primarily increase aggregate demand without affecting productivity or growth.

83. How does a policy of tax cuts specifically affect business investment and economic growth?

A) Tax cuts for businesses generally reduce available capital for investment, leading to lower economic
growth.

B) Tax cuts increase disposable income and profit margins for businesses, which can stimulate
investment and economic growth.
 C) Tax cuts have no direct impact on business investment but reduce government revenue.

D) Tax cuts primarily benefit consumers but do not significantly affect business investment.

84. What is one major type of supply-side policy that governments use to encourage increased
competition in markets?

A) Implementing stricter regulations on businesses to ensure fair competition.

B) Providing subsidies to state-owned enterprises to increase market share.

C) Deregulating industries to reduce barriers to entry and encourage competition.

D) Increasing tariffs on imported goods to protect domestic industries.

85. What impact do supply-side policies have on labor markets, specifically regarding employment and
wages?

A) Supply-side policies often lead to higher unemployment and stagnating wages due to increased
labor market rigidity.

B) Supply-side policies typically aim to reduce unemployment and increase wages by improving labor
market flexibility and skills.

C) Supply-side policies have no significant impact on employment or wages but focus solely on
business productivity.

D) Supply-side policies generally lead to lower wages and decreased employment due to increased
labor market competition.

86. In what way can investment in infrastructure as a supply-side policy impact businesses?

A) Investment in infrastructure generally leads to higher business costs and reduced economic
efficiency.

B) Investment in infrastructure can enhance business productivity and reduce operational costs by
improving transport, communication, and utilities.

C) Investment in infrastructure has no direct effect on businesses but improves consumer welfare.

D) Investment in infrastructure primarily benefits only large corporations and has minimal impact on
small businesses.

87. Which type of macroeconomic policy is most directly associated with influencing aggregate demand
and how does it impact businesses?
 A) Supply-side policies, which directly affect production capabilities.

B) Fiscal policy, which influences aggregate demand through government spending and taxation.

C) Regulatory policy, which affects market competition.

D) Trade policy, which impacts international trade balances.

88. What are the main arguments for and against following a simple inflation target as a rule for
determining interest rates?

A) A simple inflation target promotes clear policy goals but may not account for economic shocks and
changing conditions.

B) A simple inflation target provides flexibility to adjust interest rates according to changing economic
conditions.

C) Following a simple inflation target always results in optimal economic outcomes and minimizes
uncertainty.

D) A simple inflation target can ignore other important macroeconomic variables such as
unemployment and growth.

89. What does the balance of payments account primarily measure, and how is it related to exchange
rate determination?

A) The balance of payments measures government budget deficits and surpluses, influencing
exchange rate stability.

B) The balance of payments records all economic transactions between residents of a country and the
rest of the world, influencing demand and supply for the domestic currency, thereby affecting
exchange rates.

C) The balance of payments measures domestic inflation rates, which directly determine exchange
rates.

D) The balance of payments tracks changes in the domestic stock market, affecting currency exchange
rates through investment flows.

90. Which of the following is a key advantage of a floating exchange rate system compared to a fixed
exchange rate system?

A) Floating exchange rates provide more stability against external economic shocks.
 B) Floating exchange rates automatically adjust to market conditions, allowing for greater flexibility in
responding to economic changes and reducing the need for foreign exchange reserves.

C) Floating exchange rates guarantee fixed levels of inflation and unemployment.

D) Floating exchange rates eliminate the need for monetary policy adjustments.

91. How can central banks influence exchange rates in a floating exchange rate system?

A) Central banks can directly control exchange rates by setting fixed exchange rate targets.

B) Central banks can influence exchange rates through intervention in the foreign exchange market,
buying or selling their currency to affect its value.

C) Central banks cannot influence exchange rates in a floating system; they only observe market
movements.

D) Central banks influence exchange rates by adjusting fiscal policies, such as changes in government
spending and taxation.

92. What are the implications of government interventions in exchange rates for other macroeconomic
policies?

A) Government interventions in exchange rates typically lead to greater stability in inflation and
interest rates.

B) Interventions can disrupt other macroeconomic policies, such as monetary policy and fiscal policy,
by causing conflicts between exchange rate targets and domestic economic objectives.

C) Interventions in exchange rates have no significant impact on other macroeconomic policies.

D) Government interventions are often used to align macroeconomic policies with international trade
agreements.

93. What is a major impact on businesses of fluctuations in exchange rates due to government or
central bank interventions?

A) Businesses experience no significant impact from exchange rate fluctuations; their operations
remain unaffected.

B) Exchange rate fluctuations can lead to increased uncertainty in international trade, affecting profit
margins, pricing strategies, and competitive positioning.

C) Fluctuations in exchange rates always lead to higher profits for businesses engaged in international
trade.
 D) Exchange rate interventions always stabilize business operations and reduce risks associated with
international trade.

94. What is the significance of the balance of payments in determining exchange rates, and how does
it interact with monetary policy?

A) The balance of payments is irrelevant to exchange rate determination, which is solely influenced
by domestic monetary policy.

B) The balance of payments records a country's economic transactions with the rest of the world and
affects exchange rates through changes in demand and supply for foreign currencies, which interact
with monetary policy to influence economic conditions.

C) The balance of payments only impacts exchange rates through its effect on inflation, which in turn
affects monetary policy.

D) Exchange rates are determined by interest rate differentials alone, with the balance of payments
having no direct impact.

95. How did the European Economic and Monetary Union (EMU) aim to address the challenges of a
single currency, and what have been its major successes and failures?

A) The EMU aimed to create a single currency and eliminate trade barriers, leading to economic
convergence and stability across member states. Major successes included increased economic
integration, while failures included limited fiscal coordination and uneven economic performance.

B) The EMU focused solely on enhancing trade relationships within Europe without addressing
currency or economic integration issues, leading to no significant impact.

C) The EMU successfully implemented a single currency and achieved complete economic stability
across all member states, with no notable failures.
D) The EMU aimed to maintain national currencies while coordinating economic policies, leading to a
successful but fragmented approach.

96. What were the main objectives of the Exchange Rate Mechanism (ERM) and how effective was it in
achieving these objectives before the introduction of the euro?

A) The ERM aimed to stabilize exchange rates among European currencies and control inflation, but
it was largely ineffective due to frequent speculative attacks and economic imbalances.

B) The ERM sought to promote currency speculation and reduce exchange rate volatility, leading to
increased economic instability across Europe.

C) The ERM aimed to harmonize fiscal policies across Europe, with limited success in achieving stable
exchange rates.
 D) The ERM focused on increasing exchange rate flexibility and allowed for unrestricted currency
fluctuations, which were successful in managing economic growth.

97. What key argument did Marxian Socialism present regarding the effectiveness of stimulus
measures in addressing economic crises?

A) Marxian Socialism argued that stimulus measures are insufficient because they do not address
the fundamental issue of class exploitation and systemic inequalities inherent in capitalism.

B) Marxian Socialism supported stimulus measures as an effective means to redistribute wealth and
stabilize capitalist economies during crises.

C) Marxian Socialism viewed stimulus measures as a temporary fix and favored long-term structural
changes to address economic crises.

D) Marxian Socialism was neutral on stimulus measures and focused more on analyzing market
dynamics without policy prescriptions.

98. Which of the following best explains how monopolists determine their profit-maximizing level of
output?

A) Setting output where total revenue is maximized.

B) Setting output where marginal cost equals average total cost.

C) Setting output where marginal revenue equals marginal cost.

D) Setting output where price is greater than marginal revenue.

99. Under what circumstances might an oligopolistic firm act in the consumer's interest?

A) When firms compete intensely on price, leading to lower prices and increased consumer surplus.

B) When firms establish cartels to limit output and raise prices.

C) When market conditions prevent new entrants, allowing firms to maintain stable profits.

D) When firms agree to set prices above marginal cost to fund research and development.

100. Which statement best describes the significance of the slope of an indifference curve in
consumer theory?

A) It represents the consumer's total utility derived from the consumption of two goods.

B) It represents the marginal utility of one good relative to another, illustrating the marginal rate of
substitution (MRS) between the two goods.
C) It shows the consumer's income elasticity of demand for two goods.

D) It reflects the total expenditure a consumer is willing to spend on two goods.