A government has stopped printing money. It has also directed its national banks to limit new loans to increase the amount of currency held in reserve. The government's goal is to reduce the amount of money available to keep the value of its currency from dropping.Which macroeconomic goal is this government trying to achieve?A.Increasing GDPB.Decreasing per capita GDPC.Reducing unemploymentD.Reducing inflation
Question
A government has stopped printing money. It has also directed its national banks to limit new loans to increase the amount of currency held in reserve. The government's goal is to reduce the amount of money available to keep the value of its currency from dropping.Which macroeconomic goal is this government trying to achieve?A.Increasing GDPB.Decreasing per capita GDPC.Reducing unemploymentD.Reducing inflation
Solution
The government is trying to achieve D. Reducing inflation.
Here's why:
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. When a government stops printing money and directs its national banks to limit new loans, it is essentially reducing the supply of money in the economy.
By doing so, it aims to increase the value of its currency and decrease the rate of inflation. This is because when there is less money circulating in the economy, the value of that money goes up, and the prices of goods and services go down, which in turn reduces inflation.
So, the macroeconomic goal the government is trying to achieve is reducing inflation.
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