A Level Economics (A2) chapter 3: The macroeconomy MCQs with answers
By Team Megalecture · Updated 4 Nov 2026
83 exam-style questions on The macroeconomy, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.
Try each one, then open the answer. These ten stay the same; the test draws new ones every time.
1. In a closed economy with no government sector, the marginal propensity to consume is 0.75. Investment rises by $40m. What is the eventual increase in national income?
A
$120m
B
$160m
C
$30m
D
$10m
Show answer
Answer: B. The multiplier is 1 ÷ (1 − 0.75) = 4, so national income rises by 4 × $40m = $160m. $120m is only the extra consumption generated in later rounds; it leaves out the first $40m of investment spending.
2. Commercial banks keep a reserve ratio of 12.5%. A customer deposits $400 of new cash. What is the maximum possible increase in total bank deposits?
A
$3,200
B
$2,800
C
$450
D
$50
Show answer
Answer: A. The bank credit multiplier is 1 ÷ 0.125 = 8, so deposits can rise by up to 8 × $400 = $3,200. Of this, $2,800 is newly created by lending; the original $400 is held as reserves.
3. Which policy is most likely to make economic growth more inclusive?
A
cutting the top rate of income tax to encourage enterprise and investment
B
reducing corporation tax for large exporting firms
C
free primary education and basic health care for poor rural areas
D
raising a flat-rate sales tax on basic foods
Show answer
Answer: C. Education and health care in poor areas raise the human capital of groups that would otherwise be left out, so they can share in growth. The other policies benefit mainly higher-income groups or bear most heavily on the poor.
4. Which change is most likely to lower the natural rate of unemployment?
A
a cut in interest rates that boosts aggregate demand
B
better information linking jobseekers with suitable vacancies
C
an increase in the generosity of unemployment benefits
D
a rise in the minimum wage to above the market-clearing wage rate
Show answer
Answer: B. Better job-matching shortens job search, reducing frictional unemployment, which is part of the natural rate. Lower interest rates act on demand-deficient unemployment, while more generous benefits and a higher minimum wage tend to raise the natural rate.
5. A central bank raises interest rates to reduce inflation. Which would make this policy more effective?
A
most household debt is at interest rates fixed for many years
B
firms finance most investment from retained profits
C
most household borrowing is on variable-rate mortgages
D
changes in the policy rate take a long time to affect banks' lending rates
Show answer
Answer: C. If mortgage payments rise as soon as rates rise, households' disposable income and spending fall quickly, so demand is reduced. Fixed-rate debt, internal finance and slow pass-through all weaken the effect.
6. In year 0 an economy has no output gap and actual output is $200bn. Potential output then grows by 2.5% a year. Actual output grows by 1% in year 1 and by 5% in year 2. What is the position at the end of year 2?
A
a negative output gap of about 0.9% of potential output
B
a negative output gap of about 1.5% of potential output
C
a positive output gap of about 6.1% of potential output
D
a positive output gap of about 0.9% of potential output
Show answer
Answer: D. Actual output = 200 × 1.01 × 1.05 = $212.1bn; potential output = 200 × 1.025² = $210.1bn. Actual exceeds potential by about 0.9%, a positive gap. A negative gap of about 1.5% was the position at the end of year 1, before the fast growth in year 2.
7. A country's fish stocks naturally regenerate by about 5% a year, but the fishing industry now catches 8% of the stock each year. What is the likely long-run result?
A
the stock stays constant because fish are a renewable resource
B
the stock shrinks, so future output from fishing falls
C
output from fishing can keep growing at 8% a year
D
the stock grows because heavier fishing speeds up regeneration
Show answer
Answer: B. A renewable resource is conserved only if it is used no faster than it regenerates. Catching 8% a year against 5% regeneration runs the stock down, so growth in fishing output now reduces output in the future.
8. An economy's equilibrium national income is $800bn, but its full-employment national income is $1,000bn. The multiplier is 4. The deflationary gap is measured as the amount by which aggregate expenditure falls short of the level needed for full employment. What is its size?
A
$50bn
B
$200bn
C
$250bn
D
$800bn
Show answer
Answer: A. National income must rise by $200bn, and with a multiplier of 4 an extra $200bn ÷ 4 = $50bn of aggregate expenditure would achieve this, so the shortfall of expenditure is $50bn. $200bn is the gap in output (income), not the shortfall in expenditure, and $800bn multiplies by the multiplier instead of dividing.
9. What is meant by the money supply?
A
the total amount of money, including bank deposits, in an economy at a given time
B
the amount of new notes and coins printed by the central bank each year
C
the total value of goods and services produced in a year
D
the amount of cash that commercial banks must keep as reserves against their deposits
Show answer
Answer: A. The money supply is the stock of money in the economy at a point in time. In most measures, bank deposits are much larger than notes and coins.
10. Using Keynesian liquidity preference theory with a fixed money supply, what is the effect of a rise in national income on the rate of interest?
A
it rises, because the transactions demand for money increases
B
it falls, because more saving adds to the supply of loanable funds
C
it falls, because the speculative demand for money decreases
D
it is unchanged, because the money supply is fixed
Show answer
Answer: A. Higher income raises the transactions and precautionary demand for money, shifting the liquidity preference curve to the right. With a vertical money supply curve, the interest rate must rise to restore equilibrium.
83, each with the answer and a short explanation, across 4 topics: The circular flow of income, Economic growth and sustainability, Employment/unemployment, Money and banking. Every chapter test draws ten of them, so you can take it many times.
Is the A Level Economics (A2) chapter 3 test free?
Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.
How is the chapter test marked?
The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.
