Week 2 Economic Indicator Interactions Quiz

What happens when interest rates fall?

• Borrowing becomes more expensive

• Consumer spending decreases

• Business investment decreases

• Borrowing becomes cheaper

What is generally true if GDP is rising steadily?

• Unemployment generally rises

• Unemployment generally falls

• Interest rates increase

• Consumer spending decreases

What action might the Reserve Bank take in response to high inflation?

• Increase government spending

• Decrease taxes

• Raise interest rates

• Lower interest rates

What tends to happen when unemployment is high?

• Consumer spending increases

• GDP growth accelerates

• Consumer spending decreases

• Interest rates fall

What is a potential effect of rising interest rates?

• Higher inflation

• Slower GDP growth

• Increased consumer borrowing

• Increased business investment

What might the Reserve Bank do if inflation is low or falling?

• Raise interest rates

• Lower interest rates

• Decrease government spending

• Increase taxes

What is a consequence of a low unemployment rate?

• Wage growth

• Decreased consumer demand

• Higher unemployment

• Lower inflation

What does high inflation do to purchasing power?

• Erodes it

• Increases it

• Has no effect

• Stabilises it

What can rapid GDP growth cause?

• Higher unemployment

• Demand-pull inflation

• Decreased demand

• Lower prices

What is a consequence of persistent high unemployment?

• Accelerated GDP recovery

• Decreased welfare spending

• Increased income tax revenue

• Lower government revenue