Answer :
Final answer:
The twin goals of macroeconomic policy are primarily to avoid depressions and runaway inflation. While over regulation of business and high interest rates may affect the economy, they are not considered primary goals. Maintaining economic stability is essential to foster growth and prosperity.
Explanation:
The Twin Goals of Macroeconomic Policy
The twin goals of macroeconomic policy primarily aim to maintain economic stability and foster growth. Specifically, two of the main problems that macroeconomic policy seeks to avoid include:
- Depressions: These are severe declines in economic activity that can lead to high unemployment rates and significant economic hardship. Historical examples include the Great Depression of the 1930s.
- Runaway inflation: This occurs when prices increase uncontrollably, diminishing the purchasing power of currency. Central banks strive to keep inflation low and stable to avoid adverse effects on savings and investment.
On the other hand:
- Over regulation of business and high interest rates are not directly classified as twin goals of macroeconomic policy but can be consequences of economic measures.
While excessive regulation can hinder business operation, moderate regulation is necessary for protecting consumers and ensuring fair competition. High interest rates are often used as a tool to control inflation but can also restrict spending and investment.
Overall, macroeconomic policy targets the prevention of severe economic downturns (like depressions) and extreme price increases (like runaway inflation) to ensure a stable economic environment.
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