Why is a federal government decision to increase spending considered a matter of macroeconomic policy?

• A. Because it is primarily concerned with the pricing of specific goods and services.
• B. Because it only influences the financial decisions of individual households.
• C. Because it affects aggregate demand and overall economic activity at the national level.
• D. Because it deals exclusively with the management of private businesses.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the scope of macroeconomic policy, which focuses on the overall economy rather than individual markets or sectors.
2. Step 2: Recognize that federal government spending is a tool of fiscal policy, which influences aggregate demand—the total demand for goods and services in the economy.
3. Step 3: Note that increasing government spending injects more money into the economy, potentially boosting economic activity, employment, and output at the national level.
4. Step 4: Contrast this with microeconomic policy, which deals with pricing and decisions at the level of individual goods, services, or households.
5. Step 5: Conclude that because government spending affects aggregate demand and overall economic activity, it is rightly considered a matter of macroeconomic policy.