Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Which of the following contributes to full employment as a macroeconomic objective?

  1. Low interest rates

  2. Increases in national income

  3. Decreases in government spending

  4. High inflation rates

The correct answer is: Increases in national income

The correct answer is an increase in national income, as this directs leads to greater demand for goods and services, which in turn encourages businesses to hire more workers. When national income rises, it typically signals economic growth, where consumers and businesses spend more. This increased economic activity creates more job opportunities, reducing unemployment rates and working toward the goal of full employment. While low interest rates can stimulate investment and borrowing, they do not necessarily guarantee an increase in employment. Conversely, decreases in government spending could lead to a contraction in the economy, undermining efforts to achieve full employment as this often results in reduced demand and potential job losses. High inflation rates generally erode purchasing power and can lead to economic uncertainty, which could cause companies to hold back on hiring. Therefore, an increase in national income is the most direct contributor to achieving full employment as a macroeconomic objective.