Question

1. One of the goals of monetary policy is

creating deflation.

keeping taxes low.

maintaining price stability.

2.

.How does monetary policy affect the market?

Monetary policy has a direct impact on aggregate demand.

Monetary policy has a more of an impact on consumption than investment.

Monetary policy has an indirect impact on aggregate demand.

3.

Assume the government has a balanced budget and that the economy is experiencing a period of growth higher than predicted, tax receipts (collected) by the government are likely to

increase and result in a budget deficit.

decrease and result in a budget deficit.

increase and result in a budget surplus.

Answer 1

1). The monetary policy is the policy of the central government and it is used to stabilize the economy. The monetary policy uses the money supply to stabilize the economy. The main tools of the monetary policy are open market operations, discount rate, CRR etc... One of the goals of the monetary policy is maintaining the price stability.

Ans: Maintaining price stability.

2). The monetary policy has a indirect effect on the aggregate demand, the monetary policy affect the investment decisions more importantly than the consumption. When there is a expansionary monetary policy the central bank increases the money supply in the economy and therefore the bank advances the more loan to the business and this increases the business activities and will increase the aggregate demand in the economy.

Ans: Monetary policy has an indirect impact on aggregate demand.

3). If there is a period of higher growth the government will obviously tax more to take way the inflationary pressures in the economy. And this will lead to an budget surplus for the government.

Ans: increase and result in budget surplus.