MCQ QUESTION BANK FOR ECO 221

Macro-Economics

1. Which of the following is an advantage of the barter system?

a) It is easier to regulate than a monetary system
b) It allows for more specialization of labor
c) It reduces the risk of fraud
d) It is more secure than a monetary system
Answer: b) It allows for more specialization of labor. One of the advantages of the barter
system is that it allows individuals to specialize in producing certain goods and services,
rather than having to produce everything they need themselves.

2. Which of the following is a disadvantage of the barter system?

a) It is not flexible
b) It is not efficient
c) It encourages overproduction of goods
d) It is difficult to transport goods
Answer: b) It is not efficient. The barter system can be inefficient because it requires a lot
of time and effort to find someone with whom to trade, negotiate a fair exchange rate, and
transport goods.

3. Which of the following is a function of money?

a) A means of production
b) A store of labor
c) A unit of account
d) A source of capital
Answer: c) A unit of account. Money can function as a unit of account, allowing
individuals to measure the value of goods and services in terms of a standardized
currency.

4. Which of the following is a characteristic of money?

a) It is always difficult to transport
b) It is always backed by the full faith and credit of the government
c) It is always accepted at face value
d) It is always difficult to counterfeit
Answer: b) It is always backed by the full faith and credit of the government. Money
must be backed by the government or some other institution with a reliable reputation to
ensure that it is accepted as a medium of exchange.

5. Which of the following is a characteristic of money?

a) It is perishable
b) It is always backed by a commodity
c) It is an asset of the holder
d) It is easily replicated
Answer: c) It is an asset of the holder. Money is an asset of the holder because it
represents a claim on goods and services in the economy.

6. Which of the following is a characteristic of money?

a) It is scarce
b) It has intrinsic value
c) It is only accepted within a single country
d) It cannot be easily transported
Answer: a) It is scarce. Money must be scarce to be considered valuable because if it
were abundant, it would be less useful as a medium of exchange.

7. Which of the following is an example of representative money?

a) A gold coin that has intrinsic value
b) A paper currency that is backed by gold
c) A paper currency that is not backed by anything
d) A government-issued bond that can be redeemed for cash
Answer: b) A paper currency that is backed by gold is an example of representative
money because it represents a claim on a commodity, which in this case is gold.

8. Which of the following is an example of fiat money?

a) A gold coin that has intrinsic value
b) A paper currency that is backed by a commodity
c) A cryptocurrency that can be used to make purchases
d) A paper currency that is not backed by a commodity
Answer: d) A paper currency that is not backed by a commodity is an example of fiat
money because its value is determined by government decree rather than the value of a
commodity.

9. Which of the following is an example of commodity money?

a) A paper currency that is not backed by a commodity
b) A gold coin that has intrinsic value
c) A cryptocurrency that can be used to make purchases
d) A government-issued bond that can be redeemed for cash
Answer: b) A gold coin that has intrinsic value is an example of commodity money
because its value is derived from the commodity it is made from, which in this case is
gold.

10. According to the monetarist theory of money, which of the following is true?
a) The demand for money is solely determined by the interest rate.
b) The velocity of money is constant.
c) The money supply has a direct impact on economic output in the short run.
d) Money is neutral in the long run.
Answer: d) The monetarist theory of money posits that money is neutral in the long run,
meaning that changes in the money supply only have a temporary effect on the economy.

11. According to the Keynesian theory of money, which of the following is true?
a) The demand for money is solely determined by the interest rate.
b) The velocity of money is constant.
c) The money supply has no impact on economic output.
d) Money is non-neutral in the short run.
Answer: d) The Keynesian theory of money posits that money is non-neutral in the short
run, meaning that changes in the money supply can have an impact on economic output.

12. According to the quantity theory of money, which of the following is true?
a) The demand for money is solely determined by the interest rate.
b) The velocity of money is constant.
c) The price level is directly proportional to the money supply.
d) Money is neutral in the long run.
Answer: c) The quantity theory of money posits that the price level is directly
proportional to the money supply.

13. Which of the following is an example of a liquid asset?

a) A house
b) A car
c) A savings account
d) A stock investment
Answer: c) A savings account is an example of a liquid asset because it can be easily
converted into cash.

14. What is inflation?

a) A decrease in the general level of prices of goods and services
b) An increase in the general level of prices of goods and services
c) A decrease in the amount of money in circulation
d) An increase in the amount of money in circulation
Answer: b) Inflation is an increase in the general level of prices of goods and services.

15. Which motive for holding money is the most common among households?
a) Transaction motive
b) Precautionary motive
c) Speculative motive
d) Portfolio motive
Answer: b) Precautionary motive

16. What is the motive for holding money that is most closely associated with
investors who want to take advantage of market opportunities?
a) Transaction motive
b) Precautionary motive
c) Speculative motive
d) Portfolio motive
Answer: c) Speculative motive

17. What is the main reason for holding money under the precautionary motive?
a) To invest in the stock market
b) To buy real estate
c) To protect against unexpected expenses or emergencies
d) To earn a high rate of return

18. Which of the following is an example of a macroeconomic issue?

a) The effect of a minimum wage increase on the number of workers employed in a
specific industry.

b) The impact of an advertising campaign on the demand for a specific product.

c) The relationship between interest rates and investment spending in the overall
economy.

d) The factors that determine the price of a specific stock.

e) The effect of changes in consumer preferences on the production decisions of

individual firms.

Answer: c)

19. Which of the following is a difference between microeconomics and

macroeconomics in terms of policy implications?
a) Microeconomic policies are typically aimed at stabilizing the overall economy, while
macroeconomic policies are aimed at improving individual markets.

b) Microeconomic policies are usually implemented by central banks, while

macroeconomic policies are implemented by governments.

c) Microeconomic policies are often focused on improving efficiency and reducing

market power, while macroeconomic policies are focused on promoting economic growth
and stability.

d) Microeconomic policies are more effective than macroeconomic policies in addressing

inflation.

e) Microeconomic policies are typically implemented through changes in tax and

regulatory policy, while macroeconomic policies are implemented through changes in
monetary and fiscal policy.
Answer: c)

20. Which of the following is a characteristic of microeconomic analysis?

a) It focuses on the behavior of the economy as a whole.

b) It deals with issues such as inflation, unemployment, and economic growth.

c) It uses data on individual firms and households to analyze their behavior in markets.

d) It is concerned with the long-run trends and cycles of the economy.

e) It assumes that economic agents have perfect information and make rational decisions.

Answer: c)

21. Which of the following is NOT a difference between microeconomics and

macroeconomics?
a) Microeconomics is concerned with individual economic agents, while
macroeconomics deals with aggregates of these agents.

b) Microeconomics deals with the behavior of firms and households, while

macroeconomics focuses on the performance of the entire economy.

c) Microeconomics assumes that markets are always efficient, while macroeconomics

recognizes that markets can sometimes fail.

d) Microeconomics uses partial equilibrium analysis, while macroeconomics uses general

equilibrium analysis.

e) Microeconomics focuses on short-run analysis, while macroeconomics is concerned

with long-run analysis.

Answer: c)
 Micro-Economics

1. Which of the following best defines economics?

a) The study of how individuals and society make choices about the production,
distribution, and consumption of goods and services.
b) The study of how people make choices based on the laws of supply and demand.
c) The study of how money and capital are invested and used to create wealth.
d) The study of how societies allocate resources to maximize social welfare.
Answer: a) The study of how individuals and society make choices about the production,
distribution, and consumption of goods and services.

2. Which of the following best summarizes the idea of opportunity cost in

economics?
a) The cost of producing one more unit of a good or service.
b) The value of the best alternative forgone when a choice is made.
c) The cost of using resources that could have been used for other purposes.
d) The value of a good or service in relation to its price.
Answer: b) The value of the best alternative forgone when a choice is made.

3. Which of the following best describes the concept of ceteris paribus in

economics?
a) The assumption that all other factors remain constant except the one being studied.
b) The assumption that all factors are equally important in economic analysis.
c) The assumption that the market is always in equilibrium.
d) The assumption that the government should intervene in the economy to correct
market failures.
Answer: a) The assumption that all other factors remain constant except the one being
studied.

4. Which of the following best defines demand in economics?

a) The total amount of goods and services produced in an economy.
b) The willingness and ability of consumers to buy a product at a given price.
c) The total amount of money spent by consumers in an economy.
d) The availability of a product in the market.
Answer: b) The willingness and ability of consumers to buy a product at a given price.

5. Which of the following factors would NOT shift the demand curve for a product?
a) A change in consumer income.
b) A change in the price of a complementary product.
c) A change in the price of the product.
d) A change in consumer preferences.
Answer: c) A change in the price of the product.

6. Which of the following is true when the price of a product increases?

a) Quantity demanded increases.
b) Quantity demanded decreases.
c) Demand decreases.
d) Demand remains constant.
Answer: b) Quantity demanded decreases.

7. Which of the following best describes the income effect in demand?

a) The change in quantity demanded of a product due to a change in consumer income.
b) The change in quantity demanded of a product due to a change in the price of a
complementary product.
c) The change in demand for a product due to a change in consumer preferences.
d) The change in demand for a product due to a change in the price of the product.
Answer: a) The change in quantity demanded of a product due to a change in consumer
income.
 8. Which of the following is an example of a substitute product?
a) Coffee and tea.
b) Peanut butter and jelly.
c) Cars and gasoline.
d) Televisions and cable subscriptions.

9. Which of the following is NOT a determinant of demand?

A. Income
B. Price of substitute goods
C. Price of complementary goods
D. Cost of production
Answer: D. Cost of production

10. Which of the following is an example of an implicit cost?

A. The cost of purchasing equipment for a business
B. The wages paid to employees
C. The opportunity cost of using personal savings to start a business
D. The value of the owner's time spent managing the business
Answer: D. The value of the owner's time spent managing the business

11. Which of the following is true about wants?

A. Wants and needs are interchangeable terms that mean the same thing
B. Wants are essential to human survival
C. Wants are shaped by a person's environment and culture
D. Wants are the same for all individuals, regardless of their personal preferences
Answer: C. Wants are shaped by a person's environment and culture

12. Which of the following is an example of a want?

A. Water
B. Clothing
C. A vacation to Hawaii
D. Electricity
Answer: C. A vacation to Hawaii

13. Wants are:

A. Limited in quantity and can be satisfied through consumption
B. Unlimited in quantity and can never be fully satisfied
C. Determined by the government and provided to citizens through public services
D. Always satisfied through the consumption of goods and services
Answer: B. Unlimited in quantity and can never