IECO1100 MCQ Practice Questions for Exams

1) A BUSINESS CYCLE follows which sequence?

A) Boom; Trough; Expansion ; Contraction
B) Trough ; Contraction ; Boom ; Expansion
C) Boom ; Contraction ; Trough ; Expansion
D) Contraction; Boom, Expansion ; Trough

2) During Business Cycles, the opposite of a BOOM is a

A) Trough
B) Downturn
C) Boom
D) Contraction

3)If in year 1 Government spending was $13 bill and Tax revenue was $8b and then in year
2 the Government increased their spending by $4b and Government increased their Tax
revenue by $6b so the year 2 federal budget would be a
A) Balanced Budget
B) Deficit of $4bill
C) Surplus of $3 bill
D) Deficit of $3 bill

4)If in year 1 Government spending was $6 bill and Tax revenue was $9b and then in year 2
the Government increased their spending by $4b and Government increased their Tax
revenue by $2b so the year 2 federal budget would be a
A) Balanced Budget
B) Deficit of $1bill
C) Surplus of $1 bill
D) Surplus of $3 bill

5) The most important RBA objective is?

A) Maintenance of full employment.
B) Economic prosperity and welfare
C) Stable price levels
D) Stable Australian dollar

6. The only AVOIDABLE type of unemployment is?

A. seasonal unemployment
B. cyclical unemployment
C. frictional unemployment
D. structural unemployment

7. Unemployment caused by changing technology, demand patterns and overseas

competition is?
A. seasonal unemployment
B. cyclical unemployment
C. frictional unemployment
D. structural unemployment
8. Unemployment caused by people being in the middle of changing jobs is
A. seasonal unemployment
B. cyclical unemployment
C. frictional unemployment
D. structural unemployment

9. During RECESSION the biggest cause of unemployment is?

A. seasonal unemployment
B. cyclical unemployment
C. frictional unemployment
D. structural unemployment

10. Unemployment caused by a lack of total spending in the economy is?

A. seasonal unemployment
B. cyclical unemployment
C. frictional unemployment
D. structural unemployment

11. The natural rate of unemployment or Full Employment is

A. When structural and frictional unemployment are zero
B. When cyclical unemployment is zero
C. When zero unemployment is achieved
D. When only cyclical unemployment exists

12. During INFLATION which groups can gain

A. Lenders and asset owners
B. borrowers and asset owners
C. lenders and members of strong unions
D. borrowers and pensioners

13. During INFLATION which groups can LOSE

A. Lenders and asset owners
B. borrowers and fixed income earners
C. Borrowers and members of weak unions
D. Lenders and pensioners

14. BUDGET SURPLUSES occur when ________ and will _______ the economy
A. G > T; expand
B. T.> G ; expand
C. G > T; contract
D. T > G; contract

15. A balance of payments DEFICIT occurs when ________ and will _________ the
economy
A. M > X; expand
B. X > M; expand
C. M > X; contract
D. X < M; contract
16. A balance of payments SURPLUS occurs when ________ and will _________ the
economy
A. M > X; expand
B. X > M; expand
C. M > X; contract
D. X < M; contract

17. Animals like elephants in the wild are ___________ goods , but animals that are farmed
like cows are _______________ goods
A. common property, private
B. private, common property
C. public, common resources
D. public, private

18.Common property goods are

A. excludable and non-rival in consumption
B. non-excludable and non-rival in consumption
C. non-excludable and rival in consumption
D. excludable and rival in consumption

19.Public goods are

A. excludable and non-rival in consumption
B. non-excludable and non-rival in consumption
C. non-excludable and rival in consumption
D. excludable and rival in consumption

20.Private goods are

A. excludable and non-rival in consumption
B. non-excludable and non-rival in consumption
C. non-excludable and rival in consumption
D. excludable and rival in consumption

21. EXPANSIONARY Monetary Policy is used during ___________ so (Cash Rates) and
interest rates are ______________ to ______________AD
A. BOOM : Raised : Increase
B. BOOM : Raised ; Decrease
C. RECESSION : Lowered : Increase
D. RECESSION : Raised : Decrease

22. Rising interest rates are used to

A. reduce AD to reduce INFLATION
B. reduce AD to increase INFLATION
C. increase AD to reduce INFLATION
D. increase AD to increase INFLATION

23. FALLING interest rates are used to

A. reduce AD to reduce UNEMPLOYMENT
B. reduce AD to increase UNEMPLOYMENT
C. increase AD to reduce UNEMPLOYMENT
D. increase AD to increase UNEMPLOYMENT
24. The correct combination of policies during strong economic boom would be
A. Contractionary Fiscal and Contractionary Monetary policies
B. Expansionary Fiscal and Monetary Policies
C. Contractionary Monetary and Expansionary Fiscal policies
D. Expansionary Monetary and Contractionary Fiscal Policies

25. If the population is 40 million,15-65 year old population is 29 million and labour force is
22 million with 20 million employed, the unemployment rate is closest to ________ and
the participation rate is nearest to _____________ respectively :-
A. 9%, 76%
B. 10%, 55%
C. 10%, 76%
D. 9%, 55%

26) Assume a very simple economy produces three goods: Muffins, Juices and Coffees.
Suppose the quantities produced and their corresponding prices for 2017 and 2018 are
shown in the following table:
2017 2018
Product Quantity Price Quantity Price
Muffins 40 $2.80 50 $3.00
Juices 20 $2.00 30 $2.20
Coffees 100 $4.00 150 $4.50

What is nominal GDP in 2017?

A) $160
B) $8.80
C) $192
D) $552

27) from the table in questions 26 above, what is real GDP in 2018?
A) $800
B) $887
C) $614
D) $552

28. the percentage change in RGDP from 2017 to 2018 is

A. 44.9%
B. 60.7%
C. 11.2%
D. 31%

29) If the MPC is 0.9 then respectively the Government Spending Multiplier is
__________ and the Tax Multiplier is _______________

A) 1.1 ; -0.1
B) 10 ; -0.9
C) 10 ; -9
D) 9 ; -8
30) In order to reduce INFLATION the federal government should ________ Government
spending and/or Taxes should be ________.
A) decrease; decreased
B) increase; decreased
C) decrease; increased
D) increase; increased

31) In order to reduce UNEMPLOYMENT the federal government should ________

Government spending and/or Taxes should be ________.
A) decrease; decreased
B) increase; decreased
C) decrease; increased
D) increase; increased

32) EXPANSIONARY Monetary Policy by the Reserve Bank of Australia results in

A) an increase in interest rates, and a decrease in GDP.
B) a decrease in interest rates, and an increase in GDP.
C) an increase in interest rates, and an increase in GDP.
D) a decrease in interest rates, and a decrease in GDP.

33) Investment spending includes purchase of

A) shares/ stocks
B) second hand manufactured goods
C) new cars for personal use
D) new houses

34) The best definition of investment is

A) spending money on consumer and capital goods
B) spending money on new production
C) spending money on capital goods
D) spending money on resources

35) The largest component of AD is

A) Consumption
B) Investment
C) Government Spending
D) Net Exports

36) If federal government raises government spending by $12 billion and the marginal
propensity to consume is 0.6 What happens to equilibrium GDP? (hint: first find the
Government spending multiplier)
A) there is a $30 billion decrease in equilibrium GDP.
B) there is a $30 billion increase in equilibrium GDP.
C) there is a $50 billion increase in equilibrium GDP.
D) there is a $18 billion increase in equilibrium GDP.
37) If federal government gives a $20 billion tax cut and the marginal propensity to consume
is 0.6 What happens to equilibrium GDP? (hint: first find the tax multiplier)
A) there is a $50 billion decrease in equilibrium GDP.
B) there is a $30 billion decrease in equilibrium GDP.
C) there is a $50 billion increase in equilibrium GDP.
D) there is a $30 billion increase in equilibrium GDP.

38) Suppose that real GDP equals $200 billion while full employment real GDP equals
$220 billion. To close this gap, the government should increase its spending by
A) $2 billion if the MPC is 0.9.
B) $3 billion if the MPC is 0.9.
C) $4 billion if the MPC is 0.6.
D) $5 billion if the MPC is 0.8.

39) Which of the following can NOT function as an automatic stabiliser?

A) Government spending on infrastructure
B) Government spending on more unemployment benefits during a recession
C) Increasing income tax collections during a boom
D) Decreasing company and sales taxes during contractioins

40) If a decrease (shift LEFT) in SRAS occurs with an increase (shift RIGHT) in AD then
which will definitely happen?
A) Price Levels will rise
B) Price Levels will rise and RGDP will rise
C) RGDP will fall
D) RGDP will rise and Price level will fall

41) Frictional unemployment would increase if

A) workers quit their job and begin searching for a different job.
B) the economy enters a recession.
C) cheaper foreign imports replace domestically produced goods.
D) a parent leaves the labour force to care for a newborn baby.

42) Which of the following is likely to cause Demand Pull Inflation if the economy is currently
in equilibrium at full employment GDP?
A) increase in income taxes
B) a decrease in real wages
C) an increase in Export revenue
D) a fall in government spending on education and health

43) Exports of goods from Australia creates a

A) demand for foreign currency and supply of dollars
B) supply of foreign currency and decreased demand for dollars.
C) demand for dollars and supply of foreign currencies
D) supply of foreign currency with no effect on the market for dollars
44) If JAPAN experienced a significant DEPRECIATION of its
currency, what would be the most likely effect in Australia?
A) Imported inflation from the JAPAN would increase.
B) Australia’s competitiveness with JAPAN would increase
C) Australia’s exports to JAPAN would be cheaper to Japanese buyers.
D) Imports from JAPAN would be cheaper.

45) Suppose interest rates changed so that the interest rate is HIGHER in Australia than in
JAPAN, the demand curve for
A) YEN will shift rightward
B) Australian dollars will shift leftward
C) Australian dollars will shift rightwards
D) Both currencies would remain unchanged

46. Which of the following is not MARKET FAILURE

A. a major war in the Middle East increasing oil prices
B. Market or Monopoly power by one firm charging very high prices
C. Over fishing
D. externalities

47. A RISING or APPRECIATING Australian Dollar will mean

A. our exports will be more expensive and imports cheaper
B. our exports will be cheaper and imports more expensive
C. both our exports and imports will be more expensive
D. both our exports and imports will be cheaper

48. A FALLING or DEPRECIATING Australian Dollar will mean

A. our exports will be more expensive and imports cheaper
B. our exports will be cheaper and imports more expensive
C. both our exports and imports will be more expensive
D. both our exports and imports will be cheaper

49. An APPRECIATION of the AUSTRALIAN DOLLAR will have a _____________ effect on

the economy by ____________ the X-M component of AD
A. Contractionary ; decreasing
B. Contractionary : increasing
C. Expansionary ; decreasing
D. Expansionary ; increasing

50. Fiscal Policy is used to stabilise the business cycle so budget deficits are run during
__________ and budget surpluses are run during ___________
A. Boom ; Expansion
B. Expansion ; Contraction
C. Contraction ; Expansion
D. Contraction: Trough
51. A Budget Deficit occurs when __________ and causes AD to _________
A. G>T; Rise
B. G>T ; Fall
C. T>G ; Rise
D. T> G Fall

52. A Budget Surplus occurs when __________ and causes AD to _________

A. G>T; Rise
B. G>T ; Fall
C. T>G ; Rise
D. T> G Fall

53. If the CPI is 136.2 in January 2016 and then 143.8 in January 2017 then the inflation rate
for January 2017 rounded to the nearest one decimal place was _________
A. 5.3 %
B. 5.6 %
C. 3.6 %
D. 7.6%

54. Full employment is

A. most likely to be achieved well after a boom
B. the same as zero unemployment
C. when there is zero cyclical unemployment
D. when the whole labour force is fully employed

55. Cost Push inflation can be caused by

A. rising subsidies to producers
B. Rising wages
C. Rising spending
D. Rising Australian dollar