SSEMA-Economic Activity and Government Policies 2023B

What is Gross Domestic Product (GDP), and why is it a crucial indicator for measuring the economic performance of a country?

• GDP is the total number of goods and services produced in a country, and it reflects the overall well-being of citizens.

• GDP is the total monetary value of all goods and services produced in a country, and it serves as a key indicator of a country's economic health.

• GDP is the total number of businesses operating in a country, and it indicates the level of competition in the market.

• GDP is the total amount of government spending in a country, and it measures the efficiency of public services.

What is the difference between nominal GDP and real GDP, and why is it important to adjust GDP for inflation when analyzing economic growth?

• Nominal GDP accounts for inflation, while real GDP does not.

• Nominal GDP does not account for inflation, while real GDP adjusts for inflation.

• Nominal GDP and real GDP are the same, and they both reflect the impact of inflation on the economy.

• Nominal GDP measures the value of goods only, while real GDP includes services and does not consider inflation.

Analyze a scenario in which a country experiences a significant increase in consumer spending, but at the same time, there is a decline in investment by businesses. How might this affect the country's GDP and overall economic activity?

• GDP increases due to higher consumer spending, leading to economic growth.

• GDP remains unchanged as the two factors offset each other.

• GDP decreases because declining business investment outweighs increased consumer spending.

• GDP becomes unpredictable as the impact of these changes is uncertain.

Consider a situation where a government invests heavily in infrastructure projects such as building roads and bridges. How might this government spending influence the country's GDP, and what could be the potential economic consequences?

• GDP decreases due to government expenditure, leading to economic instability.

• GDP remains constant as government spending does not affect economic activity.

• GDP increases as government spending stimulates economic growth and job creation.

• GDP becomes unpredictable because government projects do not impact the economy.

In a given year, a country experiences a trade deficit, meaning it imports more goods and services than it exports. How might this trade deficit affect the country's GDP, and what implications could it have for economic activity?

• GDP increases due to higher imports, promoting economic growth.

• GDP remains unaffected as trade deficits do not influence economic activity.

• GDP decreases because imports subtract from the country's economic output.

• GDP becomes unpredictable as the impact of trade deficits varies.

What is the primary goal of the Federal Reserve System, and how does it work to achieve this goal through its monetary policy tools?

• The primary goal is to maximize government revenue through taxation.

• The primary goal is to regulate international trade.

• The primary goal is to promote price stability and full employment through tools like interest rate adjustments.

• The primary goal is to control fiscal policy through government spending.

Explain the role of the Federal Reserve in regulating and supervising banks and financial institutions in the United States.

• The Fed does not have any role in bank regulation.

• The Fed ensures that banks comply with environmental regulations.

• The Fed oversees and regulates banks to maintain a safe and sound financial system.

• The Fed controls the stock market.

Analyze a scenario where the economy is experiencing high inflation. What specific actions and monetary policy tools might the Federal Reserve employ to address this issue, and how could these actions impact the economy?

• The Fed might lower interest rates to encourage borrowing and spending, potentially stimulating economic growth.

• The Fed might raise interest rates to reduce borrowing and spending, potentially curbing inflation.

• The Fed might print more currency to combat inflation, leading to economic stability.

• The Fed might decrease government spending to control inflation, potentially causing a recession.

Consider a scenario where the unemployment rate is high, and the economy is in a recession. How might the Federal Reserve use its tools to stimulate economic growth and reduce unemployment, and what challenges could it face in this endeavor?

• The Fed might increase interest rates to encourage investment and job creation, potentially reducing unemployment.

• The Fed might decrease the money supply to control inflation, potentially exacerbating the recession.

• The Fed might collaborate with the Department of Defense to create jobs, potentially improving the economy.

• The Fed might encourage banks to reduce lending, preventing further economic instability.

In a scenario where banks are facing financial distress due to a crisis, explain how the Federal Reserve can act as the 'lender of last resort' and the potential implications of this role for the stability of the financial system.

• The Fed cannot intervene in bank crises.

• The Fed may provide emergency loans to banks facing liquidity problems, preventing a widespread banking collapse.

• The Fed may purchase stocks to stabilize the stock market during a crisis.

• The Fed may increase interest rates during a banking crisis to discourage borrowing.