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18 Questions

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Types of Economic Systems

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Questions and Answers

In a free-market economic system, how are resource allocation decisions made?

By coordinating with the government

Through state control

By political philosophies

Through the price system (correct)

Which of the following is a leakage in the circular flow model?

Consumer spending

Investment spending

Government spending

Imports (correct)

What is the primary goal of inflation targeting by the South African Reserve Bank (SARB)?

To manage government spending and taxation effectively

To regulate the interest rates and money supply

To control inflation within a specific framework (correct)

To reduce the budget deficit and accumulate surpluses

How does fiscal policy impact the economy when it is tightened?

Higher taxes or reduced government spending Signup and view all the answers

What is the purpose of direct controls in economic management?

Control inflation through price and income policies Signup and view all the answers

How do open market operations influence the economy?

By controlling the money supply and interest rates Signup and view all the answers

What does the bank or discount rate policy influence directly?

Market interest rates Signup and view all the answers

Why is coordination between fiscal and monetary policies considered crucial?

To ensure both policies are effective Signup and view all the answers

In a mixed economy, the allocation of resources is influenced by which of the following?

Political philosophies only Signup and view all the answers

Which factor does NOT impact the circular flow model?

Exports Signup and view all the answers

What does aggregate demand in an economy encompass?

Consumer spending, government spending, investment spending, and net exports Signup and view all the answers

How are real and financial flows related in the circular flow model?

Real and financial flows coexist Signup and view all the answers

How does the Reserve Requirements policy impact the economy?

By affecting money supply and credit extension Signup and view all the answers

What is the main purpose of open market operations in monetary policy?

To influence interest rates and credit growth Signup and view all the answers

Why does the coordination of fiscal and monetary policies play a crucial role in economic management?

To prevent one policy's effects from canceling out the other Signup and view all the answers

What is the primary function of the Bank or Discount Rate Policy?

To influence market interest rates Signup and view all the answers

How does fiscal policy impact economic activity when it is loosened?

By reducing tax burdens on citizens Signup and view all the answers

What happens when there is a budget surplus in a country?

It indicates a healthy fiscal situation where receipts exceed expenditures Signup and view all the answers