Macroeconomic Policy

Question 1

What is macroeconomic policy?

Answer 1

The study of the economic behavior of the whole economy rather than one market.

Question 2

Who is the overall economic policymaker in macroeconomics?

Answer 2

The government.

Question 3

What are the main macroeconomic objectives?

Answer 3

• Economic growth
• Employment
• Economic stability

Question 4

What is the goal of high and stable levels of employment?

Answer 4

Ensures that most of the labor force is working.

Question 5

What does price stability aim to achieve?

Answer 5

Keeping inflation at a moderate level to ensure that purchasing power stays.

Question 6

What is meant by a satisfactory balance of payments position?

Answer 6

A country is financially balanced.

Question 7

What does an acceptable rate of sustainable economic growth refer to?

Answer 7

Economy grows without causing environmental degradation.

Question 8

What is the goal of reducing income and wealth distribution inequality?

Answer 8

To reduce economic inequality amongst all of society.

Question 9

What does sound government finances entail?

Answer 9

Maintaining balanced budgets, avoiding excessive debt, and ensuring sustainability.

Question 10

What are the two types of government economic policies?

Answer 10

• Demand-side policies
• Supply-side policies

Question 11

What is a challenge in macroeconomic policies concerning employment and price stability?

Answer 11

Policies aimed at boosting employment may increase aggregate demand and cause inflation.

Question 12

What conflict exists between economic growth and environmental sustainability?

Answer 12

Economic growth may lead to higher production and construction, which can go against environmental protection policies.

Question 13

What is a challenge regarding sustainable economic growth and equitable distribution?

Answer 13

Benefits of growth may not be evenly distributed, possibly leading to widening income inequalities.

Question 14

What are the key considerations in decision-making with limited resources?

Answer 14

• Prioritizing needs over wants
• Optimizing the use of available resources
• Long-term planning over short-term gains

Question 15

What are some environmental considerations for governments?

Answer 15

• Waste reduction and separation
• Project Green (afforestation project)
• Free public transportation
• Grants (e.g., for electric cars)

Question 16

What are market-based approaches that governments can impose on businesses?

Answer 16

• Tax per unit of pollution
• Subsidies for green technologies

Question 17

What are low-based approaches that governments can implement?

Answer 17

• Laws banning or limiting polluting activities
• Mandatory standards and regulations

Question 18

What is the primary focus of demand-side policy?

Answer 18

Influencing economic behavior for macroeconomic goals

Demand-side policy aims to adjust aggregate demand through fiscal and monetary measures.

Question 19

What are the two main types of fiscal policy?

Answer 19

• Expansionary fiscal policy
• Contractionary fiscal policy

Fiscal policy involves government spending and taxation to influence the economy.

Question 20

What are the two main types of monetary policy?

Answer 20

• Expansionary monetary policy
• Contractionary monetary policy

Monetary policy involves managing the money supply and interest rates to influence economic activity.

Question 21

What is the goal of expansionary fiscal policy?

Answer 21

Stimulate the economy by increasing aggregate demand

This is typically achieved through increased government expenditure or tax cuts.

Question 22

How does expansionary monetary policy stimulate the economy?

Answer 22

• Increasing money supply
• Decreasing interest rates

This encourages borrowing and investment, leading to higher aggregate demand.

Question 23

What is the purpose of contractionary fiscal policy?

Answer 23

Reduce economic activity to control inflation

This is achieved by decreasing government expenditure or increasing taxes.

Question 24

What does contractionary monetary policy aim to achieve?

Answer 24

Reduce economic activity and control inflation

This is done by decreasing the money supply and increasing interest rates.

Question 25

How does the Federal Open Market Committee (FOMC) implement monetary policy?

Answer 25

• Adjusting interest rates
• Changing reserve requirements for banks

These actions influence the availability of money and credit in the economy.

Question 26

Fill in the blank: Expansionary fiscal policy is used to _______ the economy through an increase in aggregate demand.

Answer 26

stimulate

This involves increasing government spending or cutting taxes.

Question 27

True or False: Contractionary monetary policy increases the money supply.

Answer 27

False

Contractionary monetary policy decreases the money supply to curb inflation.