Correcting Recession In Macro-Poland: Economics (Essay Sample)
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Macropoland is currently experiencing a recession--consumption and investment are very sluggish, and unemployment is quite high at 9%. Currently, inflation is very low at 0.4% (the historical average rate of inflation is about 2%). The Macropolish President has just hired you as her economic advisor. Your job is to prescribe policy that would enable the economy to recover from the recession. Explain how you could use the standard tools of expansionary monetary policy and expansionary fiscal policy to stimulate this economy towards economic growth.source..
Correcting Recession in Macro-Poland
A fall in the GDP or negative growth in the economy leads to a recession in a country. The government of Macro-Poland continues to exhibit recession due to their negligence to mitigate the signs at the onset of the recession. For instance, states usually identify indicators at the beginning of the recession. Thus, they need to increase the aggregated demands such as investment, exports and consumer spending based on the existing policies. However, Macro-Poland nation neglected the prior recession indicators in the early days. Instead, the government provided the grounds for high-interest rates with a high fall in asset prices including the bank losses leading to low lending rates. Thus, the economy of Macro-Poland had no self-regulation. Correcting the recession in Macro-Poland needs the implementation of both classical and Keynesian economics in the form of fiscal policy and expansionary tools to improve the economy, re-establish consumption, improve employment and raise investment rates.
Examination of the Macro-Poland fiscal policy reveals that the country delved into lowering the interest rates to improve the consumer spending and investments. Such techniques usually lead to a reduction of cost of borrowing and encourage investments. Besides, it leads to a decrease in the expenses of the mortgage payment that leads to high disposable income to the homeowners as well as low incentive to save (Martin 1). However, the government failed to monitor the disadvantages of the technique that led to liquidity trap due to lack of confidence with nobody to invest. The banks fail to lend mortgage and the loans with the depreciation of exchange rates. Lastly, the savers lose out due t
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