Question

Talona's latest economic data indicates that GDP is -0.08 and unemployment is 8.1%, while Genovia's economic data indicates shows continuing pressure for rising price levels. Diagnose the current health for each of these economies and provide your prescription of the appropriate remedy needed in each instance.

Answer 1

The economic data analysis of Talona indicates that it has negative GDP rate and a relatively high unemployment rate. Genovia’s economic data shows a continuing pressure for rising price levels. The following analysis and remedies could be suggested for Talona’s economy

· The negative GDP growth of the economy suggests the contraction in business sales or earnings which in turn suggests a contraction of its economy.

· It also indicates a declining wage growth and a contraction of money supply in the economy.

· It causes decrease in real income, higher unemployment as given, lower industrial production levels and a decline in the wholesale or retail trade.

· The above result may be due to shifts in demand, increasing interest rates, decline in government spending or other factors.

· The high unemployment rate as seen is due to both the variations in the demand side of the employer and supply side of the worker. The demand side effects are due to high interest rates, global recession or financial crisis. The supply side is caused by frictional and structural unemployment rise.

The following remedies may be suggested so that the health of its economy may be retained to its original levels

· Increase consumer spending and business investment which has the potential to regenerate the economic growth.

· Increased lending of banks would result in more capital to the business sector and thus would result in better employment opportunities and in tun would result in increased production capabilities of the economy which can improve the GDP percentage.

· Tax cuts and infrastructure spending can also bring positive impacts on Talona’s economy.

· Once the economy is boosted and the industrial establishments are regenerated, it would automatically lead to lesser unemployment

Analysis and remedies for Genovia’s economy

· The rising price levels of the Genovia’s economy indicates a rise in the inflation levels.

· Increased public spending, tax reductions, hoarding, and price rise in the international markets forms the reasons for increased price levels in Genovia

· With increase in price levels, the value of money decreases and leads to greater uncertainty of the currency in the market

· Both monetary and fiscal policies could be applied so as to curtail the rise in inflation.

· Monetary policy involves raising the interest rates so that the demand in the economy decreases which leads to more savings

· The fiscal policies involves sale of government securities so that the money flow in the economy gets limited.