Macro-level Modifications Quiz

The Federal Reserve System primarily regulates the money supply and interest rates to achieve economic goals.

Government spending is a fiscal policy tool, not a monetary policy tool.

Personal savings are not directly counted in GDP calculations as they represent income not spent on goods and services.

Inflation refers to the general increase in prices of goods and services over a period of time.

While foreign investment influences the economy, it is not a direct component of aggregate demand.

Deflation is the persistent decline in the overall price level of goods and services.

Expansionary fiscal policy involves boosting government spending to stimulate economic growth.

The Phillips Curve demonstrates the inverse relationship between inflation and unemployment.

A trade surplus increases demand for the country's currency, leading to its appreciation.

Contractionary monetary policy aims to decrease the money supply to curb inflationary pressures.

Central banks buy or sell government securities to adjust the money supply, a process known as open market operations.

Expansionary monetary policy aims to boost economic activity by increasing the money supply and lowering interest rates.

Supply-side policies aim to boost economic growth by reducing barriers to production, such as taxes.

A recessionary gap indicates an economy producing below its full potential output, resulting in unemployment.

Higher labor force participation leads to more economic output, hence increasing potential GDP.

Crowding out occurs when increased government spending reduces funds available for private investment.

Stagflation refers to a situation where there is high inflation combined with high unemployment and stagnant economic growth.

Increasing the reserve requirement reduces the amount of money banks can lend, thus decreasing the money supply.