Macroeconomics Quiz

Economic Growth

• Definition: An increase in the production of goods and services in an economy over a period of time, usually measured by the increase in GDP.
• Factors affecting economic growth:
  • Technological progress
  • Institutional factors (e.g. property rights, rule of law)
  • Investment in human capital (e.g. education, healthcare)
  • Investment in physical capital (e.g. infrastructure, machinery)
  • Natural resources
• Types of economic growth:
  • Extensive growth: Increase in output due to an increase in inputs (e.g. labor, capital)
  • Intensive growth: Increase in output due to an increase in productivity

Inflation

• Definition: A sustained increase in the general price level of goods and services in an economy over a period of time.
• Types of inflation:
  • Demand-pull inflation: Excessive demand for goods and services drives up prices
  • Cost-push inflation: Increase in production costs (e.g. wages, raw materials) drives up prices
  • Built-in inflation: Expectations of future inflation lead to higher prices today
• Measuring inflation:
  • CPI (Consumer Price Index): Measures the average change in prices of a basket of goods and services
  • GDP Deflator: Measures the average change in prices of all goods and services in an economy

Monetary Policy

• Definition: The actions of a central bank to control the money supply and interest rates to promote economic growth, stability, and low inflation.
• Tools of monetary policy:
  • Open market operations: Buying or selling government securities to increase or decrease the money supply
  • Reserve requirements: Setting the minimum amount of reserves commercial banks must hold
  • Interest rates: Setting the interest rate at which banks borrow from the central bank
• Monetary policy objectives:
  • Price stability: Low and stable inflation
  • Full employment: Maximum employment and output
  • Economic growth: Promoting sustainable economic growth

Fiscal Policy

• Definition: The use of government spending and taxation to influence the overall level of economic activity.
• Tools of fiscal policy:
  • Government spending: Increasing or decreasing government expenditure on goods and services
  • Taxation: Increasing or decreasing taxes to influence aggregate demand
• Fiscal policy objectives:
  • Demand management: Increasing aggregate demand to boost economic growth
  • Redistribution of income: Reducing income inequality through taxation and government spending
  • Stabilization: Reducing the impact of economic shocks (e.g. recessions)

Test your knowledge of macroeconomic concepts, including economic growth, inflation, monetary policy, and fiscal policy.