AS Level Economics chapter 5: Government macroeconomic intervention MCQs with answers
By Team Megalecture · Updated 4 Nov 2026
50 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
Fiscal policy17 questions
Monetary policy11 questions
Supply-side policy12 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 an example of government capital (investment) spending?
A
building a new motorway between two cities
B
paying the salaries of police officers
C
buying medicines for state hospitals
D
paying pensions to retired civil servants
Show answer
Answer: A. Capital spending is on assets that will be used for many years, such as roads, schools and hospitals. Salaries and medicines are current spending, used up within the year, and pensions are transfer payments.
2. An economy is on the upward-sloping section of its aggregate supply curve. The government raises income tax. What is the most likely effect?
A
AS shifts left; the price level rises and real output falls
B
AD shifts right; the price level, real output and employment all rise
C
AD shifts left; the price level falls, but real output and employment do not change
D
AD shifts left; the price level, real output and employment all fall
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Answer: D. Higher income tax reduces disposable income and consumption, so AD shifts to the left. On the upward-sloping section this lowers both the price level (or the rate of inflation) and real output, so fewer workers are needed.
3. When is an expansionary monetary policy most appropriate?
A
when inflation is well above target and still rising
B
when AD is weak, unemployment is rising and inflation is below target
C
when the economy is at full capacity and aggregate demand is growing fast
D
when house prices and household borrowing are rising rapidly
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Answer: B. Expansionary policy raises AD, which helps when output and employment are below capacity and inflation is low. In the other situations it would add to inflationary pressure.
4. Inflation is well above the government's target and spending is growing faster than the economy's productive capacity. Which policy is most suitable for bringing inflation back towards the target?
A
raising interest rates to reduce aggregate demand
B
cutting income tax to raise households' disposable income
C
increasing government current spending
D
relaxing the limits on bank lending
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Answer: A. The inflation is demand-pull, so a contractionary policy that reduces AD is needed. The other measures are expansionary and would add to demand, pushing inflation further above the target.
5. Which is a tool of monetary policy?
A
a cut in the rate of tax on company profits
B
a subsidy for firms that train apprentices and school leavers
C
a tariff on imported steel
D
a limit on the amount that banks may lend to households
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Answer: D. Credit regulations, such as limits on bank lending, are a tool of monetary policy, along with interest rates and the money supply. Tax changes are fiscal policy, training subsidies are supply-side policy and tariffs are protectionism.
6. A supply-side policy shifts the aggregate supply curve to the right while aggregate demand is unchanged. The economy is on the upward-sloping section of the aggregate supply curve. What is the most likely effect?
A
real output and the price level both rise
B
real output and the price level both fall
C
the price level rises and real output does not change
D
real output rises and the price level falls
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Answer: D. A rightward shift of AS with AD unchanged moves the economy down along the AD curve, giving a higher real output at a lower price level (or a lower rate of inflation).
7. Which is a direct tax?
A
a tax on the profits of companies
B
a sales tax on mobile phones
C
an excise duty on cigarettes
D
a customs duty on imported cars
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Answer: A. A direct tax is levied on income or wealth and paid directly to the government by the person or firm that earns it. Sales taxes, excise duties and customs duties are indirect taxes on spending.
8. An economy is at full employment, on the vertical section of its LRAS curve. The central bank increases the money supply and cuts interest rates. What is the most likely result?
A
a higher real output with no change in the price level
B
a higher real output and a lower price level
C
a lower price level with no change in real output
D
a higher price level with no lasting rise in real output
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Answer: D. At full capacity there are no spare resources, so the rise in AD cannot raise real output for long; the extra spending mainly raises the price level (demand-pull inflation).
9. What is meant by supply-side policy?
A
measures to raise spending, shifting the AD curve to the right
B
measures to cut the growth of the money supply, shifting the AD curve to the left
C
measures to limit imports, protecting domestic industries
D
measures to raise productive capacity, shifting the LRAS curve to the right
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Answer: D. Supply-side policies aim to increase the quantity and quality of resources and the efficiency with which they are used, so the economy can produce more: LRAS shifts to the right. Measures that act on spending are demand-side policies.
10. Why might a large and rising national debt be a concern for a government?
A
it means that the country must have a current account deficit
B
it shows that the government has a budget surplus
C
more of its revenue may have to be spent on debt interest
D
it must all be repaid within the following year
Show answer
Answer: C. Interest must be paid on the debt, so as it grows more revenue may go on debt interest rather than on public services, and lenders may demand higher interest rates. The debt does not have to be repaid all at once.
Government macroeconomic intervention: questions students ask
How many Government macroeconomic intervention MCQs are there?
50, each with the answer and a short explanation, across 4 topics: Government macroeconomic policy objectives, Fiscal policy, Monetary policy, Supply-side policy. Every chapter test draws ten of them, so you can take it many times.
Is the AS Level Economics chapter 5 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.
