Macroeconomic Aims
What does the government tries to achieve when it wants everyone to have a job?
Full employment
What is it called when the government increases spending to boost the economy?
Expansionary fiscal policy
Who controls monetary policy in most countries?
The central bank.
True or False: Inflation means prices are falling.
False
True or False: The central bank controls government spending.
False
If a country has rising prices, which macroeconomic aim is most at risk?
Price stability
If the government lowers taxes, what kind of fiscal policy is this?
Expansionary.
What does the central bank raise to slow borrowing and spending?
Interest rates
What is it called when prices are falling and the value of money increases?
Deflation
Which policy—fiscal or monetary—involves government taxes?
Fiscal policy
Name two government aims for a strong economy.
Economic growth and low inflation.
The government raises income taxes. What is the likely short-term effect on consumer spending?
It decreases
If interest rates go up, what is likely to happen to consumer borrowing?
It decreases
Name one thing that might cause inflation.
High demand for goods or rising production costs.
If unemployment is high, which macro aim needs improvement?
Low unemployment.
If many people lose their jobs, which macroeconomic aim is being missed?
Low unemployment.
The government builds 10 new schools. Is this expansionary or contractionary?
Expansionary
What kind of monetary policy is used to reduce inflation?
Contractionary monetary policy
Why can deflation be harmful?
People might stop buying, hurting businesses.
Choose: High interest rates make borrowing... (easier or harder)?
Harder.
A country has high unemployment and little consumer spending. Which macroeconomic aim is NOT being met?
Full employment (and economic growth)
Why might the government cut spending during inflation?
To reduce demand and lower prices.
If the economy is growing too fast and causing inflation. What should the central bank do?
Raise interest rates
Prices of goods dropped in three straight months. Is this inflation or deflation, and what might it lead to?
Deflation; might lead to reduced spending
Which is a better policy to fight inflation: raising taxes or lowering interest rates?
Raising taxes (fiscal) or raising interest rates (monetary) — both can help.