2.3.5 Possible conflicts between macroeconomic policy objectives

• What is the primary goal of economic growth as a macroeconomic policy objective?

  Increase in real GDP
• Maintaining price stability ensures consumers' purchasing power.


  True
• Order the following macroeconomic policy objectives by their primary goals:

  1️⃣ Economic Growth (Increased GDP)

  2️⃣ Full Employment (Reduced Unemployment)

  3️⃣ Price Stability (Low Inflation)

  4️⃣ Balance of Payments Equilibrium (Stable Current Account)
• Economic growth leads to higher living standards
• What is the target for the current account deficit as a percentage of GDP?

  Below 3%
• Economic growth is measured by the increase in real GDP
• Time lags in policy implementation can lead to inaccurate economic outcomes.


  True
• A liquidity trap occurs when low interest rates fail to stimulate demand
• Full employment reduces poverty, increases social cohesion, and boosts economic output
• Balance of payments equilibrium ensures exchange rate crises are avoided.

  True
• Economic growth is defined as an increase in real Gross Domestic Product
• What effect does fiscal stimulus have on inflation?

  Increases inflation
• What is the primary consequence of time lags in macroeconomic policy implementation?

  Inaccurate policy impact
• A liquidity trap occurs when low interest rates fail to stimulate demand
• Order the limitations of macroeconomic policy tools from most common to least common:

  1️⃣ Time Lags

  2️⃣ Crowding Out

  3️⃣ Liquidity Trap

  4️⃣ Conflicting Objectives

  5️⃣ External Factors
• A negative supply shock can worsen the balance of payments due to higher import costs.


  True
• What is required to navigate economic shocks effectively?

  Policy coordination
• Full employment aims to minimize unemployment
• What does balance of payments equilibrium prevent?

  Exchange rate crises
• Maintaining inflation at a low rate encourages investment.


  True
• What is the main benefit of full employment as a macroeconomic policy objective?

  Reduces poverty
• Price stability protects consumers' purchasing power.


  True
• What does balance of payments equilibrium ensure?

  Financial stability
• What is crowding out in fiscal policy?

  Government spending displaces private investment
• External economic factors can limit the effectiveness of domestic policies.


  True
• What does price stability aim to maintain?

  Low and stable inflation
• What is the significance of macroeconomic policy objectives for an economy?

  Achieving stability and prosperity
• Policies aimed at economic growth often lead to higher inflation.


  True
• Governments must balance economic growth and price stability to achieve an optimal economic outcome
• Crowding out occurs when government spending displaces private sector investment.


  True
• What inherent challenges do macroeconomic policies face?

  Limitations and constraints
• Match the economic shock with its potential effect on policy objectives:

  Negative Supply Shock ↔️ Higher inflation

  Positive Demand Shock ↔️ Increased interest rates
• A positive demand shock can lead to higher inflation, forcing central banks to raise interest rates
• Coordination between monetary and fiscal policies can achieve balanced growth and price stability.

  True