Explanation​:
Choice A is the correct answer by definition. Quantitative easing is a process where a central bank buys long-term government bonds (and other financial assets) from commercial banks (other financial institutions) and credits their accounts with electronic reserves as digital entries held by the commercial banks at the central bank.

Explanation​:
Statement I is correct: an outward shift of the PPC illustrates long-term growth or growth in production possibilities.

Statement II is correct: a movement closer to an existing PPC shows short-term growth, or growth in actual output.

Statement III is correct: an outward shift of the PPC occurs if the quantity of resources increases.

Statement IV is incorrect: an increase in the quality of resources shifts the PPC outward.

Explanation​:

The AS curve shifts when there are changes in the costs of factors of production or indirect taxes (VAT). The AD curve shifts when there is a change in domestic consumption, investment, government spending, or net exports.

A cut in income tax would increase AD (AD1​ to AD2​), increasing disposable income and domestic consumption. A rise in indirect taxes would decrease AS (AS1​ to AS3​), as it would increase production costs across the economy.

Explanation​:
Changes in taxation and government spending can be directed towards different socioeconomic groups or different branches of industry.

Choice B is wrong because there are many trade-offs in achieving macroeconomic goals. For example, increased economic growth and employment can cause high inflation and/or a current account deficit.

Choice C is wrong as it can take time:

• for governments to recognise that action is required in the first place
• for political bodies to agree on what to do
• for the policy to impact the economy

Choice D is wrong because expansionary fiscal policy will have a greater impact on real output if there is plenty of excess capacity in the economy.

Explanation​:
Choice D is the correct answer because if consumer confidence and business confidence are weak or pessimistic, they would have a dampening effect on the effectiveness of interest rate decreases. If so, consumption and investment spending will not increase as much as desired.

The following are strengths of monetary policy:

• Choice A gives the central bank flexibility in responding to changing economic conditions.
• Choice B allows the central bank to make more targeted changes to the economy.
• Choice C gives the central bank more freedom because it can reverse policies that do not achieve the desired effect.

Explanation​:
Increasing the money supply is a type of expansionary monetary policy that aims to stimulate overall spending and may increase national output and the average price level. It is usually implemented by central banks during recessions, which are characterized by a decrease in price level, a high unemployment rate, or a negative economic growth rate.

Choice A depicts an ideal situation for the implementation of expansionary monetary policy as it could deal with weak demand that caused the recession without significant inflation coming from three successive quarters of deflation.

Choice B is incorrect as the maintenance of a 2$\%$ inflation rate is consistent with achieving inflation targeting by central banks. Expansionary monetary policy would introduce greater volatility in the average price level, causing higher inflation.

Choices C and D both depict a scenario where rapid economic growth is achieved through an increase in aggregate demand. However, implementing expansionary monetary in this case would not result in stable prices and low inflation.

Explanation​:
Choice D incorrectly describes speculative demand for money. It suggests that money has inherent value and that people speculate on the appreciation of money itself. However, speculative demand for money occurs when people anticipate a change in interest rates and prefer to hold money over interest-bearing assets.
Choice A describes the transactions motive.
Choice B describes the precautionary motive.
Choice C describes the speculative motive.

Explanation​:
Governments borrow by issuing bonds, which domestic or overseas individuals or entities (such as commercial or central banks) can purchase.

Choice A is incorrect because transfer payments only entail a redistribution of income. They do not directly increase demand for a nation’s goods or services.

Choice B is incorrect, as contractionary fiscal policy lowers inflation, making exports more competitive. Additionally, contractionary fiscal policy suppresses consumer spending, including spending on imports.

Choice D is incorrect, as fiscal policy can redistribute income by adjusting income tax and transfer payment policies.

Explanation​:
A decrease in sales taxes will lower production costs for businesses across the economy, which increases short-run aggregate supply, reducing inflationary pressure.

Choice A will cause demand-pull inflation. Choices B and C will cause cost-push inflation. Therefore, choices A, B, and C are causes of inflation.

Explanation​:
Statement I is incorrect because an increase in interest rates will lead to higher borrowing costs and a higher reward for saving, resulting in decreased investment expenditure and consumption, thus decreasing AD, not SRAS.

Statement II is incorrect because lower consumer confidence will lead to lower consumption expenditure and decreased AD, not SRAS.

Statement III is correct because higher costs of production across the economy will shift the SRAS curve to the left.

Statement IV is correct because an increase in indirect taxes will also raise the costs of production for businesses and thus shift SRAS to the left.

Explanation​:
Current expenditure refers to government spending on goods and services within the year.

Choice A is wrong, as it is an example of capital expenditure—government spending to expand the economy's productive capacity.

Choices C and D are wrong, as they are examples of transfer payments.

Explanation​:

The following are adjustments made to GDP to allow for more accurate comparisons over time and between countries:

• • Adjustment for inflation: converts nominal figures into real figures
• • Adjustment for nationality: converts GDP to GNI
• • Adjustment for population size: converts total figures into per capita figures

While inflation, nationality, and population size are commonly adjusted for, there is no commonly used national income measure that adjusts for inequality (Choice D). While it is useful to measure income inequality and use it to compare between countries, it is not necessarily relevant to GDP calculations and adjustments.

Explanation​:
In the Keynesian model, wages are assumed to be downwardly inflexible: they may rise in times of inflation, but rarely fall in times of recession. For this reason, the economy could get stuck in a recessionary gap if the government does not intervene. This is because production costs will not fall, and so, aggregate supply will not increase.

Choices A, B, and C are all associated with the new classical/monetarist model, which assumes that recessionary gaps are not persistent.

Explanation​:
The aggregate demand shifts rightward (AD1​ to AD2​) when a component of AD increases. The components of AD are consumption (C), investment (I), government spending (G), and net exports (NX), which are calculated as exports (X) minus (M).

Choice I is incorrect because a future decrease in price levels will incentivise people to reduce consumption.

Choice II is correct because a reduction in interest rates boosts consumption and investment.

Choice III is incorrect because an increase in income taxes reduces disposable income and leads to a fall in consumption.

Choice IV is correct because an increase in income of trading partners increases a country's exports, increasing net exports.

Explanation​:
Statement I is incorrect. Discretionary spending refers to changes in spending that require a decision to be made by the government. Such changes are not automatic.

Statement II is correct. Progressive taxation and unemployment benefits act as automatic stabilisers. In countries with a more progressive income tax and a larger welfare state, the impact of automatic stabilisers will be more significant.

Statement III is correct. Automatic stabilisers make the business cycle less volatile, keeping the growth rate lower in $\text{‘}$boom$\text{’}$ periods.

Explanation​:
On a Keynesian AS curve, supply is perfectly elastic when there are many unused resources in the economy. The curve becomes perfectly inelastic as factors of production become increasingly scarce.

The more excess capacity there is (Point $A$), the more impact expansionary fiscal policy will have on real output.

Choices B and C show increased competition for economic capacity, so expansionary fiscal policy increases real output by a smaller amount.

Choice D shows no excess economic capacity, so expansionary fiscal policy will not increase real output.

Explanation​:
Statement I is a strength of market-based supply-side policies: they make the economy more efficient and competitive, which improves the allocation of resources.

Statement II is another strength of market-based supply-side policies. Removing restrictions from free market activities is less costly than interventionist supply-side policies.

Statement III is a constraint of market-based supply-side policies, as they can lead to a more unequal distribution of income, and deregulation may increase market failures, negatively impacting the environment.

Statement IV is a strength of interventionist supply-side policies, rather than market-based supply-side policies.

Explanation​:
The goals of a central bank are focused on achieving short-term economic stability. These objectives include achieving low and stable inflation, implementing inflation targeting (choice A), reducing unemployment rates (choice B), and minimizing fluctuations in the business cycle (choice D).

Choice C is the correct answer because it is usually attributed to the goal of the executive branch of government and not the central bank.

Explanation​:
Closing an inflationary gap requires a decrease in AD, and increasing income tax and reducing the money supply are both contractionary policies, making D the correct answer.

Choices A, B, and C include expansionary policies, which do not close inflationary gaps.

Explanation​:
Choice D is the correct answer because it shows that the equilibrium price level would increase without any increase in the equilibrium GDP level. This occurs when the economy has reached the full employment real GDP and there are no unused factors of production. Increasing AD causes inflation without any growth to real GDP.

Choice A is incorrect because it shows a scenario of growth without any inflation.
Both choices B and C depict a scenario of growth with inflation where both the equilibrium APL and real GDP increase.

Explanation​:
When the short-run RGDP equilibrium level exceeds the full employment level of GDP, the economy is experiencing an inflationary gap. Contractionary monetary policy is required to decrease aggregate demand, which involves shifting the AD curve to the left. This shift reduces both the aggregate price level and the short-run RGDP equilibrium level, ultimately helping to close the inflationary gap.

I and IV are examples of contractionary monetary policy.

II and III are examples of expansionary monetary policy.

Explanation​:
Interventionist supply-side policies may be a burden on the government budget but they often lead to a more equitable distribution of income, and less economic inequality.

Choices A, C, and D are possible drawbacks of such policies: they are expensive and may place an unsustainable burden on national debt, they involve long time-lags, and the increased government spending may create inflationary pressures in the economy.

Explanation​:
An increase in the corporate tax rate will decrease AD by decreasing investment in the economy.

Choices B and D redistribute income in a way that should increase consumption, as the marginal propensity to consume for lower-income households tends to be higher.

Choice C is wrong, as increasing government spending directly increases AD.

Explanation​:
When AD decreases (AD to AD11​), the economy will be producing below its full-employment level of output: this is known as a recessionary gap.

During a recessionary gap, unemployment rises as businesses lay off workers in response to decreasing aggregate demand.

Choice A would be correct if AD shifted rightward.

Choice C would be correct if SRAS shifted leftward.

Choice D is not possible, as rising unemployment is a defining characteristic of a recession.

Explanation​:
While many governments pursue policies such as tariffs to protect their domestic producers from cheap imports, this is not a goal of supply-side policies, but rather of trade protection policies.

Choices A, B, and D are all goals of supply-side policies.