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Questions and Answers
Which of the following is a characteristic of a perfectly competitive market?
Which of the following is a characteristic of a perfectly competitive market?
- Many buyers and sellers (correct)
- High barriers to entry
- Limited product differentiation
- Control over market price by individual firms
What is the impact of an increase in interest rates on consumer spending?
What is the impact of an increase in interest rates on consumer spending?
- Decrease in consumer spending due to higher cost of borrowing (correct)
- Increase in consumer spending due to higher returns on savings
- No impact on consumer spending as interest rates do not affect borrowing
- Shift from savings to investment leading to higher consumer spending
What is the primary function of the central bank in a country's economy?
What is the primary function of the central bank in a country's economy?
- Controlling the money supply and interest rates (correct)
- Regulating international trade and tariffs
- Managing consumer protection laws
- Directing government spending and taxation
What does the term 'GDP' stand for?
What does the term 'GDP' stand for?
What is the main function of a central bank in an economy?
What is the main function of a central bank in an economy?
What is the impact of inflation on the purchasing power of money?
What is the impact of inflation on the purchasing power of money?
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Study Notes
Characteristics of Perfectly Competitive Market
- A perfectly competitive market is characterized by many firms producing a homogeneous product, free entry and exit, and perfect information.
Interest Rates and Consumer Spending
- An increase in interest rates reduces consumer spending as it increases the cost of borrowing, making it more expensive for consumers to purchase goods and services.
Central Bank's Primary Function
- The primary function of a central bank is to regulate the money supply, set monetary policy, and maintain the stability of the financial system.
GDP Definition
- GDP stands for Gross Domestic Product, which is the total value of all final goods and services produced within a country's borders over a specific period.
Central Bank's Main Function
- The main function of a central bank is to maintain price stability, regulate the money supply, and act as a lender of last resort to prevent the collapse of the financial system.
Inflation's Impact on Purchasing Power
- Inflation reduces the purchasing power of money, as it erodes the value of money, making it less valuable and reducing the quantity of goods and services that can be bought with a given amount of money.
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