Chapter 34 Relationships Between Objectives and Policies

1. Economic Growth

2. Control Inflation

3. Low Unemployment

4. Balance of Payments

5. Protect the Environment

6. Reduce inequality

The Six (6) Government Macroeconomic Objectives

Multiple Choice

4. If a government can achieve their aims

• It will create a favorable economic climate for firms and improve people’s standard of living

• The level of employment will decrease

• People’s standard of living will deteriorate

• People's standard of living will stagnate

Multiple Choice

A trade-off is...

• a purchase in a marketplace.

• an alternative that we sacrifice when we make a decision.

• any good or service a consumer needs.

• a factor of production.

Multiple Select

7. Expansionary policy will often be used...

• During recession

• During rising inflation (boom)

• During an economic downturn

Multiple Choice

Look at the graph. During a recession to have economic growth (expansionary policies), you may have to trade-off which objective?

• Higher unemployment

• Less equality

• Higher inflation

Multiple Choice

Economic growth will also damage the environment...unless...

• Money is spent to protect the environment (renewable energy, recycling, etc.)

• Money is not spent to protect the environment (renewable energy, recycling, etc.)

Multiple Select

11. Contractionary policy will often be used...

• During recession

• During rising inflation (boom)

• During an economic downturn

Multiple Select

Look at the graph. To reduce inflation during a boom (contractionary policies), you may have to trade-off which objective?

• Higher unemployment

• Less equality

• Higher inflation

Multiple Choice

Unemployment generally________during recessions and ________during recovery.

• Falls; rises

• Falls; falls

• Rises; falls

• Rises; rises

Multiple Choice

In 2010 the Brazilian central bank raised interest rates to reduce inflation. What is likely to happen in the Brazilian economy?

• The exchange rate will depreciate as hot money from abroad leaves local banks (balance of payments will improve)

• The exchange rate will appreciate as hot money from abroad flows into local banks (balance of payments will worsen)

• The rate of inflation will accelerate

Open Ended

Briefly explain why the balance of payments worsened (less exports, more imports) when Brazilian central bank raised interest rates to reduce inflation?