Question

1. If economic growth falls below the Macro Goal, the policy solutions include (choose three from the list below):
2. If inflation exceeds the Macro Goal, the policy solutions include (choose three from the list below):
3. If unemployment exceeds the Macro Goal, the policy solutions include (choose three from the list below):

1. Increase government spending
2. Decrease government spending
3. Increase taxes
4. Decrease taxes
5. Increase the money supplied to lower interest rates
6. Decrease the money supply to lower interest rates

Answer 1

Answer)

(i) If growth is below the Macro target, then there would be:

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1. Increase government spending
2. Decrease taxes
3. Increase the money supplied to lower interest rates.

Explanation:

The increase in government spending and a decrease in taxes are the fiscal policies and would lead to an increase in the output in the economy.

Similarly, the increase in the money supply is a type of expansionary monetary policy and would thus lead to an increase in the output.

(ii)  If inflation exceeds the Macro Goal, the policy solutions include :

1. Decrease government spending
2. Increase taxes
3. Decrease the money supplied to lower interest rates.

All these policies would leads to the decrease in the ouput until the equilibrium is reached.

(iii) If unemployment exceeds the Macro Goal, the policy solutions include :

1. Increase government spending
2. Decrease taxes
3. Increase the money supplied to lower interest rates.

Exaplanation:

The explanation is same as part (i)