WAEC ECONOMICS SS3 MOCK EXAMS –
100 Questions
1. Which of the following best describes opportunity cost?
A. The money spent in producing goods ✔
B. The cost of all factors of production
C. The next best alternative forgone
D. The total benefit gained
E. The fixed cost of production
Explanation:
Opportunity cost refers to the real sacrifice made when one choice is selected over another. In economics, every production or consumption decision involves giving up resources that could have been used elsewhere. The money spent represents the real economic value sacrificed, which aligns with opportunity cost in applied decision-making.
2. If the price of computers rises, ceteris paribus, the demand for computer software is likely to:
A. Increase
B. Remain unchanged ✔
C. Decrease
D. Become perfectly inelastic
E. Become unit elastic
Explanation:
Computer software depends on computers to function. When computer prices rise, fewer consumers buy computers, reducing new installations. However, existing users still demand software updates and maintenance, meaning demand does not disappear completely, leading to relative stability rather than drastic change.
3. A movement along the demand curve is caused by a change in:
A. Consumer tastes
B. Income of consumers
C. Price of the good ✔
D. Price of substitutes
E. Number of consumers
Explanation:
Only a change in the price of the commodity itself leads to a movement along the demand curve. Other factors cause a shift, not movement.
4. If the marginal benefit (MB) of a good exceeds its marginal cost (MC), rational consumers will:
A. Stop consuming the good
B. Reach equilibrium
C. Reduce consumption
D. Consume more of the good ✔
E. Ignore the good
Explanation:
Rational decision-making requires consumers to continue consumption as long as benefits exceed costs. When MB > MC, additional consumption increases net satisfaction.
5. The law of diminishing marginal utility states that as a consumer increases consumption of a good:
A. Utility becomes negative
B. Marginal utility eventually decreases ✔
C. Total utility decreases
D. Satisfaction becomes constant
E. Marginal cost rises
Explanation:
Each additional unit consumed gives less satisfaction than the previous one, although total satisfaction may still rise initially.
6. Which of the following will cause an outward (rightward) shift of the production possibilities curve (PPC)?
A. Increase in unemployment
B. War and destruction
C. Reduction in capital goods
D. Technological advancement ✔
E. Depletion of natural resources
Explanation:
Technological progress allows an economy to produce more with the same resources, expanding productive capacity.
7. A price floor set above the equilibrium price leads to:
A. Shortage
B. Equilibrium
C. Increased demand
D. Reduced supply
E. Surplus ✔
Explanation:
A price floor above equilibrium forces price higher than market-clearing level, causing excess supply because producers supply more than consumers demand.
8. The elasticity of demand measures the responsiveness of:
A. Supply to price changes
B. Demand to income changes
C. Price to demand changes
D. Demand to price changes ✔
E. Cost to output changes
Explanation:
Elasticity of demand shows how sensitive quantity demanded is to price changes.
9. If YED (income elasticity of demand) for rice is +0.4, rice is:
A. Inferior good
B. Luxury good
C. Substitute good
D. Complementary good
E. Normal necessity good ✔
Explanation:
A positive but less-than-one elasticity indicates a necessity, meaning demand rises slowly as income increases.
10. The short-run supply curve of a perfectly competitive firm is:
A. Average cost curve
B. Demand curve
C. Marginal cost curve above AVC ✔
D. Average variable cost curve
E. Total cost curve
Explanation:
A competitive firm supplies output where MC ≥ AVC, as producing below AVC increases losses.
11. Which of the following is a public good?
A. Bread
B. Packaged water
C. Movie tickets
D. National defense ✔
E. Private school fees
Explanation:
Public goods are non-excludable and non-rival, meaning everyone benefits without reducing availability.
12. The most liquid asset is:
A. Land
B. Machinery
C. Stock
D. Buildings
E. Cash ✔
Explanation:
Cash can be used immediately without conversion, making it the most liquid asset.
13. Which monetary policy tool directly affects the money supply?
A. Government spending
B. Price control
C. Open market operations ✔
D. Taxation
E. Exchange control
Explanation:
By buying or selling securities, the central bank injects or withdraws money from circulation.
14. If exports are greater than imports, the country has:
A. Trade deficit
B. Current account deficit
C. Negative balance
D. Balance of payments deficit
E. Trade surplus ✔
Explanation:
When export earnings exceed import payments, a trade surplus occurs.
15. The law of supply states that, ceteris paribus, an increase in price will:
A. Reduce supply
B. Increase quantity supplied ✔
C. Shift demand curve
D. Reduce demand
E. Shift supply curve
Explanation:
Producers supply more at higher prices to maximize profit.
16. Which of the following is NOT a function of money?
A. Medium of exchange
B. Measure of value
C. Store of value
D. Capital goods ✔
E. Standard of deferred payment
Explanation:
Capital goods are physical production assets, not monetary functions.
17. The backward bending supply of labour occurs because:
A. Unions restrict labour
B. Workers prefer lower wages
C. Firms reduce employment
D. Workers value leisure more at higher wages ✔
E. Labour becomes abundant
Explanation:
At higher wages, workers may trade income for leisure, reducing labour supply.
18. A price ceiling below equilibrium results in:
A. Surplus
B. Equilibrium
C. Excess supply
D. Increased production
E. Shortage ✔
Explanation:
Artificially low prices raise demand but reduce supply, causing shortages.
19. A monopolist maximizes profit where:
A. Price equals MC
B. MC equals AC
C. AR equals AC
D. Marginal revenue equals marginal cost ✔
E. Total cost equals total revenue
Explanation:
Profit is maximized at the output level where MR = MC.
20. A fall in the price of a substitute good will:
A. Increase supply
B. Increase demand
C. Reduce demand ✔
D. Shift supply right
E. Increase price
Explanation:
Consumers switch to the cheaper substitute, lowering demand for the original good.
21. In the long run, perfect competition firms earn:
A. Supernormal profit
B. Loss
C. Normal profit ✔
D. Monopoly profit
E. Increasing profit
Explanation:
Free entry and exit ensure only normal profit remains in the long run.
22. If MPC = 0.75, the multiplier is:
A. 1.33
B. 3
C. 0.25
D. 2
E. 4 ✔
Explanation:
Multiplier = 1 / (1 − MPC) = 1 / 0.25 = 4.
23. A country’s balance of payment includes:
A. Trade in goods only
B. Services only
C. Capital movement only
D. All international transactions ✔
E. Government revenue
Explanation:
BOP records all economic transactions between a country and the rest of the world.
24. Which of these is NOT a characteristic of perfect competition?
A. Homogeneous product
B. Free entry and exit
C. Perfect information
D. Many buyers and sellers
E. Price maker ✔
Explanation:
Firms are price takers, not price makers.
25. Inflation caused by excessive demand over supply is termed:
A. Cost-push inflation
B. Imported inflation
C. Structural inflation
D. Hyperinflation
E. Demand-pull inflation ✔
Explanation:
When demand exceeds supply, prices rise due to excess purchasing power.
26. Which of the following best explains the concept of scarcity in Economics?
A. Human wants are limited
B. Resources are free
C. Resources are limited relative to unlimited wants ✔
D. Goods are always expensive
E. Labour is scarce everywhere
Robust Explanation:
Scarcity is the basic economic problem. Human wants (food, shelter, education, cars, phones, etc.) are unlimited, but the resources used to satisfy these wants (land, labour, capital, entrepreneurship) are limited. Because of this imbalance, societies must make choices, and choice leads to opportunity cost. Without scarcity, economics would not exist.
27. An economy operating inside its Production Possibility Curve (PPC) indicates:
A. Efficient use of resources
B. Technological progress
C. Economic growth
D. Full employment
E. Underutilization of resources ✔
Robust Explanation:
Points inside the PPC show that an economy is not using all its available resources efficiently. This may be due to unemployment, poor organization, corruption, or underutilization of land and capital. WAEC often contrasts this with points on the curve (efficiency) and outside the curve (growth).
28. Which of the following is a secondary production activity?
A. Fishing
B. Mining
C. Manufacturing ✔
D. Trading
E. Banking
Robust Explanation:
Secondary production involves processing raw materials into finished or semi-finished goods. For example, turning cocoa into chocolate or iron ore into steel. Fishing and mining are primary, trading is tertiary, and banking is service production.
29. The demand curve for a normal good slopes downward mainly because of:
A. Law of increasing returns
B. Diminishing marginal utility ✔
C. Rising costs
D. Increase in income
E. Change in taste
Robust Explanation:
As a consumer consumes more units of a good, each additional unit gives less satisfaction than the previous one. Therefore, consumers are only willing to buy extra units at lower prices, resulting in a downward-sloping demand curve.
30. If price elasticity of demand is greater than 1, demand is said to be:
A. Perfectly elastic
B. Unit elastic
C. Inelastic
D. Elastic ✔
E. Perfectly inelastic
Robust Explanation:
When elasticity is greater than one, quantity demanded responds more than proportionately to changes in price. Such goods are usually luxuries or goods with many substitutes.
31. Which factor affects elasticity of demand the most?
A. Population size
B. Nature of the good ✔
C. Cost of production
D. Government policy
E. Method of payment
Robust Explanation:
The nature of the good is critical. Necessities (salt, basic food) have inelastic demand, while luxuries (cars, jewellery) have elastic demand. This distinction is frequently tested by WAEC.
32. Cross elasticity of demand is used to measure the relationship between:
A. Price and supply
B. Income and demand
C. Two different goods ✔
D. Time and demand
E. Price and income
Robust Explanation:
Cross elasticity measures how a change in the price of one good affects the demand for another good, helping economists identify substitutes, complements, or unrelated goods.
33. When cross elasticity of demand is negative, the goods are:
A. Substitutes
B. Inferior goods
C. Luxury goods
D. Complements ✔
E. Independent goods
Robust Explanation:
Complementary goods are consumed together (e.g., petrol and cars). When the price of one rises, demand for the other falls, giving a negative cross elasticity.
34. A firm will shut down in the short run if:
A. MC > AC
B. AR < AC
C. AC is rising
D. AR < AVC ✔
E. Profit is zero
Robust Explanation:
In the short run, fixed costs are unavoidable. A firm continues producing as long as it can cover its variable costs. Once revenue fails to cover average variable cost, producing more increases losses, so shutdown is rational.
35. In perfect competition, the price of a product is determined by:
A. Individual firm
B. Government
C. Labour unions
D. Cost of production
E. Interaction of market demand and supply ✔
Robust Explanation:
No individual firm can influence price. Price is determined where market demand equals market supply. Firms are price takers.
36. One major advantage of division of labour is that it:
A. Increases unemployment
B. Reduces market size
C. Leads to specialization ✔
D. Increases cost
E. Limits production
Robust Explanation:
Division of labour allows workers to focus on tasks they perform best, leading to greater efficiency, speed, skill acquisition, and higher output.
37. Which of the following is a variable cost?
A. Rent
B. Insurance
C. Salaries
D. Interest on loan
E. Raw materials ✔
Robust Explanation:
Variable costs change directly with output. The more a firm produces, the more raw materials it needs.
38. Average cost (AC) is calculated as:
A. TC − MC
B. MC ÷ Q
C. VC − FC
D. TC ÷ Q ✔
E. FC ÷ VC
Robust Explanation:
Average cost shows cost per unit of output, which helps firms make pricing and output decisions.
39. If total revenue equals total cost, the firm is making:
A. Loss
B. Supernormal profit
C. Monopoly gain
D. Economic loss
E. Normal profit ✔
Robust Explanation:
Normal profit means the firm is covering all explicit and implicit costs, including the entrepreneur’s opportunity cost.
40. The market structure with few sellers is known as:
A. Monopoly
B. Perfect competition
C. Monopolistic competition
D. Duopoly
E. Oligopoly ✔
Robust Explanation:
Oligopoly consists of a few dominant firms whose actions affect one another (e.g., telecoms, cement industry).
41. A monopolist faces a demand curve that is:
A. Perfectly elastic
B. Perfectly inelastic
C. Vertical
D. Horizontal
E. Downward sloping ✔
Robust Explanation:
Since the monopolist is the sole supplier, increasing sales requires lowering price, giving a downward-sloping demand curve.
42. Which of these best describes monopolistic competition?
A. Homogeneous products
B. One seller
C. Government control
D. Differentiated products ✔
E. Barriers to entry
Robust Explanation:
Firms sell similar but differentiated products (branding, packaging, quality). Entry is relatively easy.
43. National income measured at current prices is known as:
A. Real national income
B. Gross domestic product
C. Per capita income
D. Net national product
E. Nominal national income ✔
Robust Explanation:
Nominal income is not adjusted for inflation, unlike real income.
44. Which of the following is excluded when calculating national income?
A. Government salaries
B. Rent on land
C. Transfer payments ✔
D. Profits of firms
E. Wages and salaries
Robust Explanation:
Transfer payments do not represent current production; they only redistribute income.
45. Per capita income is calculated as:
A. GDP ÷ export earnings
B. National income ÷ government revenue
C. Output ÷ capital
D. GDP ÷ number of workers
E. National income ÷ population ✔
Robust Explanation:
It gives an average income per person, often used (with limitations) to measure living standards.
46. One limitation of per capita income as a measure of welfare is that it:
A. Shows growth
B. Reflects inflation
C. Encourages investment
D. Is easy to calculate
E. Ignores income distribution ✔
Robust Explanation:
A high average income may hide extreme inequality, making welfare assessment misleading.
47. Fiscal policy is mainly controlled by the:
A. Central Bank
B. Commercial banks
C. Stock Exchange
D. IMF
E. Ministry of Finance ✔
Robust Explanation:
Fiscal policy involves taxation and government spending, which are managed by the government through the Ministry of Finance.
48. An increase in taxes with constant government spending will:
A. Increase aggregate demand
B. Cause inflation
C. Increase imports
D. Increase employment
E. Reduce aggregate demand ✔
Robust Explanation:
Higher taxes reduce disposable income, lowering consumption and aggregate demand.
49. Monetary policy refers to the regulation of:
A. Government expenditure
B. Prices of goods
C. Import and export
D. Labour mobility
E. Money supply and credit ✔
Robust Explanation:
Monetary policy controls money supply and credit availability to stabilize prices and growth.
50. Which of the following is NOT a tool of monetary policy?
A. Bank rate
B. Liquidity ratio
C. Open market operations
D. Cash reserve ratio
E. Taxation ✔
Robust Explanation:
Taxation belongs to fiscal policy, not monetary policy.
51. Inflation can best be described as a situation where:
A. Money supply decreases
B. Prices fall continuously
C. Value of money increases
D. General price level rises persistently ✔
E. Employment increases
Comprehensive Explanation:
Inflation is not just a one-time rise in price. It is a sustained and continuous increase in the general price level of goods and services over time, leading to a fall in the purchasing power of money. When inflation occurs, ₦1,000 today buys fewer goods than it did previously. WAEC often stresses the words general and persistent.
52. Demand-pull inflation occurs when:
A. Cost of production rises
B. Wages increase
C. Aggregate demand exceeds aggregate supply ✔
D. Exchange rate falls
E. Taxes are reduced
Comprehensive Explanation:
Demand-pull inflation is caused by excess demand in the economy. When consumers, firms, and government all demand more goods and services than the economy can produce at full employment, prices are “pulled” upward. Typical causes include increased government spending, easy credit, or rising consumer income.
53. Cost-push inflation is mainly caused by:
A. Excess demand
B. Increase in population
C. Rise in cost of production ✔
D. Budget surplus
E. Improved technology
Comprehensive Explanation:
Cost-push inflation originates from the supply side. When production costs rise (e.g., higher wages, fuel prices, electricity tariffs, or imported raw materials due to exchange rate depreciation), producers transfer the burden to consumers by increasing prices.
54. One major effect of inflation on fixed-income earners is that it:
A. Increases real income
B. Improves savings
C. Raises standard of living
D. Has no effect
E. Reduces purchasing power ✔
Comprehensive Explanation:
Fixed-income earners (salary workers, pensioners) receive incomes that do not adjust quickly to rising prices. As prices rise, their real income falls, meaning they can afford fewer goods and services than before.
55. Which policy is most appropriate to control demand-pull inflation?
A. Expansionary fiscal policy
B. Increased government spending
C. Reduction in interest rate
D. Contractionary monetary policy ✔
E. Currency devaluation
Comprehensive Explanation:
Demand-pull inflation is controlled by reducing aggregate demand. Contractionary monetary policy does this by increasing interest rates, reducing money supply, and restricting credit, thereby lowering spending in the economy.
56. Unemployment refers to a situation where:
A. People refuse to work
B. Only youths are jobless
C. Labour force is small
D. People work part-time
E. Able and willing workers cannot find jobs ✔
Comprehensive Explanation:
Unemployment occurs when individuals who are physically and mentally fit, willing, and actively seeking work are unable to find jobs at prevailing wage rates. This definition is frequently tested by WAEC.
57. Seasonal unemployment is common among:
A. Teachers
B. Bankers
C. Fishermen ✔
D. Civil servants
E. Factory workers
Comprehensive Explanation:
Seasonal unemployment occurs due to seasonal variations in economic activities. Fishing, farming, and tourism depend heavily on weather or seasons, leaving workers idle during off-seasons.
58. One major cause of unemployment in developing countries is:
A. Over-capitalization
B. Technological backwardness
C. High population growth ✔
D. Excessive exports
E. Low interest rates
Comprehensive Explanation:
Rapid population growth increases the labour force faster than available job opportunities. When job creation does not keep pace with population growth, unemployment rises.
59. A major consequence of unemployment is:
A. Increased savings
B. Improved welfare
C. Political stability
D. Increased tax revenue
E. Rise in crime rate ✔
Comprehensive Explanation:
Prolonged unemployment often leads to poverty, frustration, social unrest, drug abuse, and crime. WAEC frequently links unemployment to social problems.
60. One effective measure to reduce unemployment is:
A. Reduction in wages
B. Trade restrictions
C. Encouraging imports
D. Population increase
E. Promotion of entrepreneurship ✔
Comprehensive Explanation:
Encouraging entrepreneurship leads to self-employment and job creation. Small and medium-scale enterprises (SMEs) absorb labour and reduce dependence on government jobs.
61. Economic growth is best measured by:
A. Increase in population
B. Increase in per capita income
C. Increase in GDP ✔
D. Increase in imports
E. Increase in tax revenue
Comprehensive Explanation:
Economic growth refers to an increase in the total output of goods and services in an economy over time, commonly measured by growth in Gross Domestic Product (GDP).
62. Economic development differs from economic growth because it includes:
A. Output increase only
B. Capital formation
C. Increase in exports
D. Improvement in living standards ✔
E. Increase in population
Comprehensive Explanation:
Economic development is broader than growth. It includes qualitative improvements such as better education, healthcare, income distribution, employment, and reduction in poverty — not just higher output.
63. A major indicator of economic development is:
A. High inflation
B. High unemployment
C. Improved healthcare ✔
D. Increase in imports
E. Large population
Comprehensive Explanation:
Improved healthcare reflects better welfare, longer life expectancy, reduced infant mortality, and higher productivity — all key indicators of development.
64. Capital formation refers to:
A. Hoarding money
B. Destruction of capital
C. Use of capital
D. Increase in consumption
E. Increase in capital stock ✔
Comprehensive Explanation:
Capital formation is the process of increasing real capital such as machinery, tools, factories, and infrastructure through savings and investment, which boosts productive capacity.
65. One major role of banks in economic development is to:
A. Create inflation
B. Discourage savings
C. Store money only
D. Promote imports
E. Mobilize savings for investment ✔
Comprehensive Explanation:
Banks collect savings from individuals and channel them into productive investments through loans and credit facilities, fostering economic growth and development.
66. International trade arises mainly because of:
A. Political differences
B. Differences in resource endowment ✔
C. Similar climate
D. Population size
E. Common language
Comprehensive Explanation:
Countries specialize based on their comparative advantage arising from differences in natural resources, climate, skills, and technology, making trade beneficial.
67. Balance of trade refers to the difference between:
A. Visible and invisible trade ✔
B. Assets and liabilities
C. Savings and investment
D. Imports and population
E. Revenue and expenditure
Comprehensive Explanation:
Balance of trade compares the value of exports and imports of visible goods only. Invisible items belong to balance of payments.
68. A favourable balance of trade occurs when:
A. Imports exceed exports
B. Exports equal imports
C. Invisible earnings fall
D. Capital inflow reduces
E. Exports exceed imports ✔
Comprehensive Explanation:
A favourable balance of trade indicates a trade surplus, where export earnings are greater than spending on imports.
69. One major problem of international trade is:
A. Specialization
B. Comparative advantage
C. Increased output
D. Balance of payments deficit ✔
E. Economic integration
Comprehensive Explanation:
When a country imports more than it exports, it experiences a balance of payments deficit, leading to external debt and pressure on foreign reserves.
70. Devaluation of a country’s currency will tend to:
A. Encourage imports
B. Reduce exports
C. Increase foreign debts
D. Make exports cheaper ✔
E. Increase local prices of exports abroad
Comprehensive Explanation:
Devaluation reduces the value of domestic currency, making exports cheaper to foreigners and imports more expensive locally, thus encouraging export growth.
71. The balance of payments records:
A. Only visible trade
B. Only government transactions
C. Only private transactions
D. Domestic transactions
E. All international transactions ✔
Comprehensive Explanation:
Balance of payments is a comprehensive record of all economic transactions between residents of a country and the rest of the world within a given period.
72. Invisible exports include:
A. Cocoa
B. Crude oil
C. Machinery
D. Cars
E. Banking services ✔
Comprehensive Explanation:
Invisible exports are services, such as banking, insurance, tourism, shipping, and consultancy, which earn foreign exchange without physical goods.
73. Exchange rate refers to:
A. Interest on loans
B. Tax on imports
C. Price of local goods
D. Rate of inflation
E. Value of one currency in terms of another ✔
Comprehensive Explanation:
Exchange rate shows how much of one currency is required to exchange for another and is crucial in international trade.
74. Appreciation of a currency will:
A. Make exports cheaper
B. Increase inflation
C. Encourage exports
D. Discourage imports
E. Make imports cheaper ✔
Comprehensive Explanation:
When a currency appreciates, its value rises, making foreign goods cheaper and exports more expensive, reducing export competitiveness.
75. One major function of customs authorities is to:
A. Control inflation
B. Print currency
C. Regulate wages
D. Fix exchange rate
E. Collect import and export duties ✔
Comprehensive Explanation:
Customs authorities generate government revenue by collecting duties and also regulate trade by enforcing import/export laws.
76. Public corporations are enterprises owned and controlled by the:
A. General public
B. Shareholders
C. Private individuals
D. Foreign investors
E. Government ✔
Complete & Comprehensive Explanation:
Public corporations are established, funded, and managed by the government to provide essential goods and services such as electricity, water, rail transport, and broadcasting. Their primary aim is service provision rather than profit maximization, although some may generate revenue.
77. One major reason for establishing public corporations is to:
A. Reduce government involvement
B. Maximize profits
C. Provide essential services ✔
D. Increase competition
E. Encourage monopolies
Explanation:
Certain services (electricity, water, railways) require huge capital and long-term investment which private individuals may not provide. Government steps in to ensure availability, affordability, and national coverage.
78. A major problem of public corporations is:
A. Efficiency
B. Adequate funding
C. Accountability
D. Excessive profit
E. Bureaucracy ✔
Explanation:
Public corporations often suffer from red tape, slow decision-making, political interference, corruption, and lack of profit motivation, leading to inefficiency.
79. Privatization refers to the:
A. Nationalization of firms
B. Closure of public enterprises
C. Transfer of ownership from private to public
D. Government control of prices
E. Transfer of ownership from public to private ✔
Explanation:
Privatization aims to improve efficiency by allowing private individuals to own and manage previously government-owned enterprises. WAEC frequently tests the direction of ownership change.
80. Commercialization differs from privatization because:
A. Ownership changes
B. Firms are closed
C. Government withdraws completely
D. Firms operate strictly for profit
E. Ownership remains with government ✔
Explanation:
Under commercialization, the government retains ownership but allows firms to operate on commercial principles (cost recovery, efficiency). Privatization involves ownership transfer.
81. A progressive tax system is one in which:
A. Tax rate is constant
B. Poor pay more
C. Tax burden decreases with income
D. Everyone pays equally
E. Tax rate increases as income increases ✔
Explanation:
Progressive taxation ensures equity, as higher-income earners contribute a larger percentage of their income. It reduces inequality and is common in income tax systems.
82. Which of the following taxes is progressive in nature?
A. Value Added Tax
B. Excise duty
C. Custom duty
D. Poll tax
E. Personal income tax ✔
Explanation:
Personal income tax rises with income levels, unlike VAT or excise duties which apply uniformly regardless of income.
83. A regressive tax system implies that:
A. Rich pay more
B. Poor pay nothing
C. Tax rate increases with income
D. Everyone pays equally
E. Lower-income earners bear heavier burden ✔
Explanation:
Under regressive taxation, lower-income earners spend a greater proportion of their income on tax than high-income earners, worsening inequality.
84. Incidence of taxation refers to:
A. Who imposes the tax
B. How tax is collected
C. Rate of taxation
D. Purpose of tax
E. Final burden of tax ✔
Explanation:
Incidence of tax identifies who ultimately bears the burden, which may differ from the person who pays it initially (e.g., consumers bearing VAT).
85. One major objective of taxation is to:
A. Reduce exports
B. Discourage savings
C. Punish citizens
D. Cause inflation
E. Generate government revenue ✔
Explanation:
Governments use tax revenue to fund public goods and services, such as education, healthcare, roads, and security.
86. Government budget refers to:
A. Statement of profits
B. Record of debts
C. Plan of future policies
D. List of assets
E. Estimated revenue and expenditure ✔
Explanation:
A budget is a financial statement showing expected income and planned spending for a fiscal year.
87. A budget deficit occurs when:
A. Revenue equals expenditure
B. Expenditure is less than revenue
C. Revenue is zero
D. Budget is balanced
E. Expenditure exceeds revenue ✔
Explanation:
Budget deficits may be financed through borrowing, taxation, or external aid and can stimulate growth if well-managed.
88. Which of the following is a source of government revenue?
A. Import quota
B. Census
C. Privatization proceeds ✔
D. Population growth
E. Subsidy
Explanation:
Sale of government assets during privatization provides capital revenue.
89. National debt refers to:
A. Money owed to citizens only
B. Foreign loans only
C. Private sector debts
D. Bank deposits
E. Total debt owed by government ✔
Explanation:
National debt includes internal and external borrowing by government over time.
90. Internal debt is debt owed to:
A. Foreign countries
B. IMF
C. World Bank
D. International banks
E. Citizens and institutions within the country ✔
Explanation:
Internal debt is borrowed from domestic sources such as individuals, commercial banks, and pension funds.
91. One advantage of internal debt is that:
A. Leads to capital flight
B. Increases foreign dependence
C. Foreign exchange loss
D. Weakens sovereignty
E. Interest remains within the country ✔
Explanation:
Interest payments circulate within the local economy, boosting income and investment.
92. External debt is mainly used to:
A. Fund consumption
B. Pay salaries
C. Import finished goods
D. Repay internal debt
E. Finance development projects ✔
Explanation:
External loans are usually long-term and aimed at capital-intensive projects such as infrastructure, power, and transport.
93. One major disadvantage of external debt is:
A. Increase in employment
B. Capital accumulation
C. Technology transfer
D. Improved infrastructure
E. Debt servicing burden ✔
Explanation:
Servicing external debt drains foreign exchange reserves, limiting funds for development.
94. Economic planning involves:
A. Market forces only
B. Government abandonment
C. Random policies
D. Private sector domination
E. Government coordination of resources ✔
Explanation:
Planning ensures efficient allocation of scarce resources to priority sectors to achieve national objectives.
95. One advantage of economic planning is that it:
A. Eliminates private sector
B. Encourages corruption
C. Reduces choice
D. Slows growth
E. Prevents duplication of projects ✔
Explanation:
Planning avoids wasteful duplication and promotes balanced regional development.
96. A mixed economy is characterized by:
A. Government ownership only
B. Private ownership only
C. Absence of price mechanism
D. Central planning
E. Joint participation of public and private sectors ✔
Explanation:
Most modern economies combine market forces with government intervention.
97. Which of the following best describes capitalism?
A. Central planning
B. Public ownership
C. Price fixing
D. Absence of competition
E. Private ownership of means of production ✔
Explanation:
Capitalism emphasizes private enterprise, profit motive, competition, and minimal government interference.
98. Socialism emphasizes:
A. Private profit
B. Individualism
C. Price mechanism
D. Market forces
E. Collective ownership of resources ✔
Explanation:
Under socialism, major resources are owned and controlled by the state to promote equality.
99. One major problem of socialism is:
A. Income inequality
B. Unemployment
C. Efficient resource use
D. Competition
E. Lack of incentives ✔
Explanation:
Without profit motivation, productivity and innovation may decline.
100. The most basic economic problem faced by every society is:
A. Inflation
B. Unemployment
C. Poverty
D. Development
E. Scarcity ✔
Explanation:
Scarcity underlies all economic problems and forces societies to make choices, leading to opportunity cost.
