Multiple Choice
In the context of macroeconomics, an increase in the money supply would lead to which of the following outcomes in the long run?
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1. Introduction to Macroeconomics
Introduction to Economics
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Why might the government and central bank use policy tools to manage the economy?
A
To ensure that all prices remain constant over time
B
To prevent any changes in consumer preferences
C
To eliminate all market competition
D
To stabilize inflation and unemployment rates
Verified step by step guidance1
Understand the primary goals of government and central bank economic policies, which typically focus on stabilizing the economy rather than controlling every individual price or consumer preference.
Recognize that inflation and unemployment are key macroeconomic indicators that affect overall economic health and individual well-being.
Learn that policy tools such as fiscal policy (government spending and taxation) and monetary policy (control of money supply and interest rates by the central bank) are used to influence aggregate demand and supply.
Analyze how these policies can help stabilize inflation by preventing it from rising too quickly or falling too low, and reduce unemployment by encouraging economic growth and job creation.
Conclude that the purpose of these policies is not to keep all prices constant or eliminate market competition, but to maintain a stable economic environment with manageable inflation and unemployment rates.
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