A Level Economics (A2) chapter 4: Government macroeconomic intervention MCQs with answers
By Team Megalecture · Updated 4 Nov 2026
45 exam-style questions on Government macroeconomic intervention, 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.
Government macroeconomic policy objectives10 questions
Links between macroeconomic problems and their interrelatedness18 questions
Effectiveness of policy options to meet all macroeconomic objectives17 questions
Ten Government macroeconomic intervention questions with answers
Try each one, then open the answer. These ten stay the same; the test draws new ones every time.
1. Which is the best statement of a government's economic growth objective?
A
the fastest possible growth of nominal GDP in every year
B
steady growth of real GDP close to the trend rate of growth of potential output
C
growth of real GDP that is well above the growth of potential output in every year
D
a rise in the share of manufacturing in GDP
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Answer: B. Governments aim for sustained real growth in line with the growth of productive capacity. Growth persistently above potential causes inflation, and nominal GDP can rise just because prices rise.
2. A country's consumer price index rises from 125 to 150. By how much does the internal value of its money change?
A
it falls by 20%
B
it falls by 25%
C
it rises by about 17%
D
it falls by about 17%
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Answer: D. The internal value of money varies inversely with the price level: 125 ÷ 150 = 0.833, a fall of about 16.7%. The price level rose by 20%, but the purchasing power of money fell by a smaller percentage.
3. Which is an example of government failure in macroeconomic policy?
A
a recession caused by a sudden fall in world demand for the country's exports
B
a rise in unemployment caused by the closure of unprofitable private coal mines
C
a rise in inflation caused by a failed harvest
D
a stimulus begun in a recession takes effect after recovery, adding to inflation
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Answer: D. Government failure occurs when intervention makes the outcome worse. Here a time lag means the policy adds to demand when it is no longer needed. The other events are shocks, not the result of policy.
4. A government cuts taxes shortly before an election even though the economy is already at full employment. What does this illustrate?
A
an automatic stabiliser at work in a boom
B
a market-based supply-side policy
C
government failure caused by political motives
D
market failure caused by negative externalities
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Answer: C. The tax cut adds to demand when there is no spare capacity, which is likely to cause inflation. It is chosen for electoral gain rather than economic need, a common cause of government failure.
5. A government's objective is economic development, not simply economic growth. Which target best reflects this?
A
raising real GDP by 5% a year
B
raising life expectancy and the share of children completing school
C
increasing the country's reserves of foreign currency held at the central bank
D
reducing the budget deficit to 3% of GDP
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Answer: B. Development means improvements in living standards and people's opportunities, including health and education, not only a rise in output.
6. Under a floating exchange rate, a central bank raises interest rates to reduce inflation. Which conflict with another objective is most likely?
A
the currency rises, worsening the current account and raising unemployment
B
the currency depreciates, raising import prices and adding further to inflation
C
the budget deficit falls, causing unemployment to fall as confidence rises
D
investment rises, moving the current account into surplus
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Answer: A. Higher interest rates attract financial inflows, so the currency rises. Exports become dearer and imports cheaper, which hurts the current account and jobs in exporting and import-competing industries.
7. Why might supply-side policies be less effective than demand-side policies in reducing unemployment during a deep recession?
A
they reduce the natural rate of unemployment
B
they cause demand-pull inflation as soon as they are introduced in a recession
C
they can only be used when the budget is in surplus
D
they are slow to work and do not tackle the shortage of aggregate demand
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Answer: D. In a deep recession most unemployment is cyclical. Raising productive capacity does little to create jobs when firms cannot sell what they already produce, and supply-side gains take years to appear.
8. Which type of economic growth is most likely to be accompanied by falling inflation?
A
growth caused by a rise in consumer borrowing
B
growth caused by higher labour productivity, shifting long-run aggregate supply right
C
growth caused by a large rise in government spending when the economy is at full employment
D
growth caused by an export boom when there is no spare capacity
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Answer: B. When growth comes from the supply side, capacity rises with output, so the price level can fall or rise more slowly. Demand-led growth with no spare capacity puts upward pressure on prices.
9. Why might a government regard a large and persistent current account deficit as a problem?
A
it means that the country's exports have fallen to zero
B
it always causes the domestic price level to rise faster than in other countries
C
it means that the government's budget must also be in deficit
D
it is financed by borrowing abroad or selling assets, which may be unsustainable
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Answer: D. A current account deficit is matched by net inflows on the financial account, so the country builds up foreign debts or sells its assets. If lenders lose confidence, the currency may fall sharply.
10. A government uses expansionary fiscal policy to reduce cyclical unemployment. Which conflict with another objective is most likely?
A
inflation falls further below its target as output rises
B
the current account worsens as higher incomes raise imports
C
the budget deficit becomes smaller
D
the natural rate of unemployment rises as more people find work
Show answer
Answer: B. Higher government spending or lower taxes raise incomes, and part of the extra spending goes on imports, so the current account worsens. The budget deficit is likely to grow, not shrink.
Government macroeconomic intervention: questions students ask
How many Government macroeconomic intervention MCQs are there?
45, each with the answer and a short explanation, across 3 topics: Government macroeconomic policy objectives, Links between macroeconomic problems and their interrelatedness, Effectiveness of policy options to meet all macroeconomic objectives. Every chapter test draws ten of them, so you can take it many times.
Is the A Level Economics (A2) chapter 4 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.
