Question

All part of one Question:

How do you know if the Dollar is stronger or weaker than another currency? If the $1 = 20 Pesos and $1 = 100 Krona in Iceland and $1 = 120 Yen. What can you say about the Dollar and the other currencies?  

What are the benefits and problems of Economic Statistics, such as GDP, inflation, Unemployment Rates, and others. Are they more headache than useful? What other alternatives do we have to these statistics and are they can any better improvements.  

Why is Fiscal Policy so hard to make? Who makes it? What are the goals of the Fiscal Policy?  

Answer 1

A stong dollar means U.S. dollar has risen to a level that is near historically high exchange rates for the other currency relative to the dollar or in simple words that the US dollar has risen to a level that you need to pay less inorder to buy an another currency.

And a weak dollar mean that you need to pay more US dollar inorder to buy a foreign currency.

In the cases like $1 = 20 Pesos and $1 = 100 Krona in Iceland and $1 = 120 Yen?, here US dollar is stronger because inorder to buy 20 pesos, 100 Krona and 120 yen, we only need to spend $1.

if the case was viceversa say $20 = 1 peso, then here we can say the dollar is weaker because we need to pay 20 US dollar to get 1 peso.

GDP stands for Gross Domestic Product, which is by definition a measure of the total real value of goods produced within a country. The total real value of goods produced within a country in any given year may fluctuate, subjected to many variables such as the health of the economy, investor confidence etc., but let's ignore those and look at currency value now. Currency value is essentially the purchasing power of any given currency, and its power is reflected in how much goods it can buy. It is affected by several factors, but we need not examine those as the questions don't require them.

GDP stands for Gross Domestic Product, which means a measure of the total real value of goods produced within a country in a year. Currency value means the purchasing power of any given currency, and its power is reflected in how much goods it can buy. Let’s take an example say of Iceland is weak relative to a foreign currency US Dollar, that US citizens will find it cheaper to purchase goods from Iceland Hence, they'll end up purchasing more goods from Iceland, which is an increase in demand for Iceland goods, which hence signals to producers in Iceland to produce more goods, and hence after all these commas I can say that the GDP of Iceland increases. Inversely speaking, if the currency of Iceland is strong relative to US dollar, the GDP of Iceland may decrease as US citizens find it expensive to purchase from Iceland, hence they demand less, hence it will give a picture to producers in Iceland to produce less, which culminates in a decrease in output and hence GDP of Iceland decreases.

With regards to the above example we can also conclude that if US dollar is stronger then, it will attract more imports which may result in increased unemployment and if US dollar is weaker then it will allow more exporting and result in decrease in unemployement.

So in conclusion i would like to say that Strong and weaker currency rate has both positives nad negatives.

Some of the alternatives inorder to reduce these economic statistics are:

1.    Cutting interest rates to boost Aggregate Demand.

2.    Cutting taxes to boost Aggregate Demand.

3.    Education and training to help reduce structural unemployment.

4.    Geographical subsidies to encourage firms to invest in depressed areas.

5.    Lower minimum wage to reduce real wage unemployment.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy?. It is hard to make because:

1.Reduced government spending will affect public services such as public transport and education causing market    failure and social inefficiency.

2.Fiscal policy will suffer if the government has poor information.

3.Expansionary fiscal policy will cause an increase in the budget deficit which has many adverse effects because a higher budget deficit will require higher taxes.

Fiscal policy decisions are made by the Congress and the Administration.

And the major goals of fiscal policy is to:

1. Full Employement

2. Economic Growth which is measured by GDP

3. Inflation Rate