Question

Country Q has noticed a rapid increase in their unemployment rate and a sharp decline in their GDP. What should policy makers focus on to help balance these economic indicators? decreasing production and limiting government spending until demand increases attempting to trade with other nations to increase production and create new jobs increasing the money supply so that consumers have more money to purchase goods implementing controls on wages, forcing employers to pay a minimum wage

Answer 1

In order to stabilize unemployment rates and GDP, the most effective measures of the ones proposed is the following:

• Attempting to trade with other nations to increase production and create new jobs.

If the national market cannot boost demand and production, is a good idea to search for customers of national products abroad. If the country can increase exports, therefore production in the country will be enhanced, more people will be employed and earn wages that can use to consume. Therefore national purchasing powers and demand will be bosted too and consumption and investment levels will increase. The increases in consumption, investment and exports will in turn, increase the GDP figures.

Increasing the money supply would also lead to a boost in demand, but at the cost of creating price uncertainty and elevating the inflation levels. If this measure is used, by trying to solve a problem you are creating an even worse one.

The other options make no sense. Decreasing production decreases GDP even further and establishing controls on wages reduces employment.