MCQ questions choose the correct answer

1. As inflation increases and becomes more volatile, resulting in greater uncertainty, which of the following is most likely to occur?

• The price system becomes less efficient as a coordinating mechanism
• Investment by firms is likely to increase
• International competitiveness is likely to improve
• Consumption by households is likely to increase

2. The Phillips curve describes the relationship between:

• the federal budget deficit and the trade deficit
• savings and investment
• the unemployment rate and the inflation rate
• marginal tax rates and tax revenues

3. Which of the following is an example of fiscal policy

• Tax increase
• Controlling money supply
• Manipulating Interest rates
• Consumer Spending

4. What is unlikely to be a feature of a large firm in a monopoly position in a market?

• It charges high prices.
• It removes barriers to entry.
• It achieves economies of scale.
• It will attract government attention.

5. In monopolistic competition: 

• All products are homogeneous
• Firms make normal profits in the long run
• There are barriers to entry to prevent entry 
• Firms face a perfectly elastic demand curve 

6. Compared to a single-price monopoly, a perfectly competitive industry produces

• more output and has a lower price.
• more output and has a higher price.
• less output and has a higher price.
• less output and has a lower price.

7. Which of the following assumptions are essential parts of the 'kinked demand' curve analysis of an oligopoly market? 

• Rivals reduce prices in response to any price increase
• Rival firms will increase price in response to any price increase
• Rivals reduce prices in response to any price decrease and ignores any price increase 
• Rival increase price in response to any price increase and ignores any price decrease 

8. What might cause the balance on the current account of a country to improve?

• increased spending by tourists in local hotels
• increased purchases of good from a foreign country
• increased transport of countries goods in foreign ships
• increased spending by locals on holidays in a foreign country

9. A country's terms of trade is the ratio of 

• the quantity of its exports to the quantity of its imports 
• the value of its exports to the value of its imports 
• the index of its export prices to the index of its import prices, multiplied by 100 
• domestic prices to international prices, multiplied by 100 

10. An increase in injections into the economy may lead to:

• An outward shift of aggregate demand and demand-pull inflation
• An outward shift of aggregate demand and cost-push inflation
• An outward shift of aggregate supply and demand-pull inflation
• An outward shift of aggregate supply and cost-push inflation

11. In the aggregate demand and aggregate supply model, the intersection of the AD and AS curves determines 

• The equilibrium price and quantity combinatio
• The difference between real and nominal GDP 
• The price level and the rate of inflatio
• The price level and real GDP 

12. How does a firm in perfectly competitive market guarantee that it makes the maximum profit?

• by maximizing the amount of goods that it sells
• by minimising the amount of goods that it keeps in stock
• by maximising the difference between its total revenue and total cost
• by minimising the difference between average revenue and average cost

13. Prices tend to be lower in a competitive industry than in a monopoly. Why is this?

• Profits are lower in a monopoly.
• Monopoly has less influence on the market.
• Competitive industry has more economies of scale.
• New firms are free to enter the competitive industry. 

14. A single price monopoly will

• flood the market with goods to deter entry.
• produce only where marginal revenue is zero.
• produce in the elastic range of its demand curve.
• produce in the inelastic range of its demand curve 

15. A monopolistically competitive firm has excess capacity because in the 

• short run the firm does not produce at the minimum marginal cost. 
• long run the firm does not produce at the minimum average total cost. 
• long run the firm earns an economic profit. 
• short run MR = MC. 

16. One key difference between an oligopoly market and a competitive market is that

• oligopolistic firms are independent from each other while competitive firms are interdependent.
• oligopolistic firms sell completely unrelated products while competitive firms sell identical products.
• oligopolistic firms are relatively small while firms in a competitive markets are relatively large.
• oligopolistic firms are price makers while competitive firms are price takers.

17. Comparative advantage occurs when: 

• A country has a lower opportunity cost in the production of a good than other countries 
• A country has more product lines than other countries
• A country can produce more goods than anyone else
• The exchange rate appreciates

18. An increase in aggregate demand is more likely to lead to demand-pull inflation if:

• Aggregate supply is perfectly elastic
• Aggregate supply is perfectly inelastic
• Aggregate supply is unit elastic
• Aggregate supply is relatively elastic 

19. If aggregate supply is totally price inelastic, an increase in aggregate demand will:

• Increase price but not output
• Increase output but not price 
• Increase output and price 
• Decrease output and price  

20. The theory of "absolute advantage"

• Best describes a situation where there are 2 countries, A and B, and potentially two goods which can be traded, which are X and Y. A is absolutely better at producing X and B is absolutely better at producing Y, and so if A specializes in producing X and B in Y, and they trade together then both countries will gain.
• Best describes the global strategy of business who always seek to gain an absolute advantage over their rivals.
• Explains why developed countries have a competitive advantage over poorer countries.
• Best describes a situation where there are 2 countries, A and B, and potentially two goods which can be traded, which are X and Y. If A was absolutely better at producing both X and Y compared to B then there would be no advantage in A trading with B.