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Read these lines about one tool a central bank can use: "An expansionary policy stimulates the economy. Interest rates decline, so business and consumer spending go up. Unemployment rates drop as businesses expand. But increasing the money supply also has a negative side: more spending pushes prices up, increasing the inflation rate." Which statement best captures the main idea of the quoted lines?
AThe policy lowers unemployment without any cost to the wider economy
BThe policy raises interest rates so that consumers save their money
CThe policy shrinks the money supply to keep inflation under control
DThe policy lifts spending and jobs but risks pushing prices higher
Answer & Solution
Correct answer: D. The policy lifts spending and jobs but risks pushing prices higher
1. The first three quoted sentences list the gains: more spending, expanding businesses, falling unemployment.
2. The last quoted sentence turns with the words negative side, warning that prices rise and inflation increases.
3. The main idea joins the two halves: the policy stimulates the economy but carries an inflation risk.
4. The no-cost option keeps the gains and drops the warning, missing half of the quoted lines.
5. The quoted lines say interest rates decline and the money supply increases, so the last two options state the reverse of both.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 1 "Understanding Economic Systems and Business", section 1.5 Achieving Macroeconomic Goals_
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