Macroeconomic Aims
If a country’s GDP is growing rapidly, which macroeconomic aim is being achieved?
Economic Growth
True or False: Cutting taxes is an example of contractionary fiscal policy.
False
If a central bank lowers interest rates, is this expansionary or contractionary monetary policy?
Expansionary monetary policy
When prices of most goods keep rising, what is this called?
Inflation
When prices of most goods keep falling, what is this called?
Deflation
If unemployment is very high, which macroeconomic aim is failing?
Full Employment
If the government increases spending on new schools and roads, is this expansionary or contractionary fiscal policy?
Expansionary
rue or False: When a central bank sells bonds through open market operations, it increases the money supply.
False (Selling bonds withdraws money from the market, reducing the money supply—a contractionary move.)
Does inflation make money more valuable?
No.
Does deflation make money more valuable?
Yes (Money buys more when prices fall)
If a country raises interest rates to control inflation, what might happen to jobs in the short run?
Unemployment may increase
If a country has high inflation and the government reduces its spending, which two macroeconomic aims is it trying to achieve?
Price Stability & Fiscal Sustainability
A country has 5% inflation and 4% unemployment (near the natural rate). What monetary policy should the central bank prioritize?
Contractionary monetary policy
If bread cost $5 last year and $6 this year, what is the price increase?
20%
If bread cost $5 last year and $4 this year, what is the price decrease?
20%
If a country raises interest rates to control high inflation, which two macroeconomic aims might be negatively affected?
Full Employment and Economic Growth
A country's economy is in recession with high unemployment. The government is considering two options:
Options:
A) Cut taxes, giving people more money to spend
B) Reduce government spending to save budget
Question:
Which option would better help economic recovery?
A（ People and businesses have more money → More spending and investment → Stimulates economy and increases employment）
A country faces:
Low inflation (1%)
High unemployment (8%)
Currency depreciation
Question:
What is the central bank's biggest policy challenge in this situation?
A) Fighting inflation without hurting growth
B) Reducing unemployment without causing capital flight
C) Stabilizing the currency while maintaining low interest rates
D) Increasing government spending without raising taxes
Correct Answer: B
(Reducing unemployment may require rate cuts, but this could accelerate currency depreciation as investors seek higher returns elsewhere.)
Which is MOST likely to cause inflation?
A) Factories produce more efficiently
B) The government prints too much money
C) People save more
B(Printing money makes prices rise.)
Which is MOST likely to cause deflation?
A) Factories produce too much
B) The government prints less money
C) People spend aggressively
A.
True or False: A central bank raising interest rates helps achieve both price stability and economic growth simultaneously."
False， Higher rates reduce inflation but can slow economic growth by making loans more expensive.
Suppose a government faces rising unemployment but also high public debt. Why might it struggle to use fiscal policy effectively?
Policy Dilemma
The economy is slowing down, and many people are losing jobs.
What is the fastest way the central bank can try to help?
A) Raise interest rates
B) Lower interest rates
C) Print more money to buy bank assets
B (Lowering interest rates makes loans cheaper, encouraging businesses to hire and people to spend.)
During inflation, what should families do? (Pick two)
A) Keep all savings in cash
B) Buy gold or property
C) Borrow more money
B & C
(Gold/property hold value; debt becomes "cheaper" to repay.)
During deflation, what should families do? (Pick two)
A) Save more cash
B) Take loans to buy houses
C) Delay big purchases
A & C
(Cash gains value; waiting gets better deals.)