Question

What monetary policy would you recommend for reducing unemployment rates in Mexico?

How would this affect their domestic and foreign relations?

Answer 1

In Mexico to reduce unemployment rate inflation rate should be high but it should be under control of less than 9% .as severe inflation or hyperinflation will lead to the loss in the real value of money and we could buy few things with a large amount of money. i.e. the value of money decreases.

hence a sufficient amount of inflation and effective monetary policy could help us to reduce the unemployment levels and proper wages must be given to lure the large population.we could take the example of the theory set by Phillips curve where it sets an opposite relation between the rate of unemployment and inflation.in short run while later on, we find them in long run natural rate of unemployment exist at 3% rate of inflation.

if unemployment is controlled it means a large number of people are part of the current expenditure and a large number of the population are earning. it will increase the demand for goods and services naturally it will boost the overall economy. and vice-versa case will happen in case of increase of higher unemployment on national income output as well.