Macroeconomic Policy Flashcards
What is macroeconomic policy?
The study of the economic behavior of the whole economy rather than one market.
Who is the overall economic policymaker in macroeconomics?
The government.
What are the main macroeconomic objectives?
- Economic growth
- Employment
- Economic stability
What is the goal of high and stable levels of employment?
Ensures that most of the labor force is working.
What does price stability aim to achieve?
Keeping inflation at a moderate level to ensure that purchasing power stays.
What is meant by a satisfactory balance of payments position?
A country is financially balanced.
What does an acceptable rate of sustainable economic growth refer to?
Economy grows without causing environmental degradation.
What is the goal of reducing income and wealth distribution inequality?
To reduce economic inequality amongst all of society.
What does sound government finances entail?
Maintaining balanced budgets, avoiding excessive debt, and ensuring sustainability.
What are the two types of government economic policies?
- Demand-side policies
- Supply-side policies
What is a challenge in macroeconomic policies concerning employment and price stability?
Policies aimed at boosting employment may increase aggregate demand and cause inflation.
What conflict exists between economic growth and environmental sustainability?
Economic growth may lead to higher production and construction, which can go against environmental protection policies.
What is a challenge regarding sustainable economic growth and equitable distribution?
Benefits of growth may not be evenly distributed, possibly leading to widening income inequalities.
What are the key considerations in decision-making with limited resources?
- Prioritizing needs over wants
- Optimizing the use of available resources
- Long-term planning over short-term gains
What are some environmental considerations for governments?
- Waste reduction and separation
- Project Green (afforestation project)
- Free public transportation
- Grants (e.g., for electric cars)
What are market-based approaches that governments can impose on businesses?
- Tax per unit of pollution
- Subsidies for green technologies
What are low-based approaches that governments can implement?
- Laws banning or limiting polluting activities
- Mandatory standards and regulations
What is the primary focus of demand-side policy?
Influencing economic behavior for macroeconomic goals
Demand-side policy aims to adjust aggregate demand through fiscal and monetary measures.
What are the two main types of fiscal policy?
- Expansionary fiscal policy
- Contractionary fiscal policy
Fiscal policy involves government spending and taxation to influence the economy.
What are the two main types of monetary policy?
- Expansionary monetary policy
- Contractionary monetary policy
Monetary policy involves managing the money supply and interest rates to influence economic activity.
What is the goal of expansionary fiscal policy?
Stimulate the economy by increasing aggregate demand
This is typically achieved through increased government expenditure or tax cuts.
How does expansionary monetary policy stimulate the economy?
- Increasing money supply
- Decreasing interest rates
This encourages borrowing and investment, leading to higher aggregate demand.
What is the purpose of contractionary fiscal policy?
Reduce economic activity to control inflation
This is achieved by decreasing government expenditure or increasing taxes.
What does contractionary monetary policy aim to achieve?
Reduce economic activity and control inflation
This is done by decreasing the money supply and increasing interest rates.
How does the Federal Open Market Committee (FOMC) implement monetary policy?
- Adjusting interest rates
- Changing reserve requirements for banks
These actions influence the availability of money and credit in the economy.
Fill in the blank: Expansionary fiscal policy is used to _______ the economy through an increase in aggregate demand.
stimulate
This involves increasing government spending or cutting taxes.
True or False: Contractionary monetary policy increases the money supply.
False
Contractionary monetary policy decreases the money supply to curb inflation.
