The current letter is intended to review a relevant economic issue and outline a policy that would serve as the solution. We are a group of students studying economics, and we are keen on providing a detailed description of the possible solution intended to mitigate the effects of the presented issue. We would also like to ask for a public meeting so that we could present our vision to the policy makers.
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Economic policies are designed to provide the solutions to the existing problems inherent in the economic sector of the country. Nevertheless, there are cases when one policy interferes with another, and it leads to adverse outcomes. The problem that we state in this letter emphasizes the problem of maintaining stable prices. It is a well-known fact that an unbalanced economic sector is a rather dangerous asset. This is why we point out the significance of maintaining stable prices and provide a rationale for this issue.
One of the most prevalent outcomes of unstable prices and reduced monetary value of the provided services is called inflation. In other words, a high-pitched growth of the prices leads to a situation where it costs more to buy the same things. The rationale presupposes that a low level of inflation guarantees the stability of the prices. Nonetheless, we realize that even the governmental state of affairs can critically affect the economic background of a country. This is why we developed two radical solutions that are intended to minimize the adverse influence of inflation and help the administration to promote and maintain economic growth.
After a detailed review of the available options, we came to the conclusion that a custom fiscal policy can be one of the solutions to the problem. We recommend taking into consideration the increase in governmental spendings aimed to cut the taxes and increase the overall demand. Consumer spending can be triggered by the decrease in income taxes. Moreover, we believe that spending more will stimulate the economy and create job opportunities. We also realize that the presented fiscal policy may end up in an increased government borrowing. So as to find a balance, the government will have to borrow resources from the private sector. The key reason why this strategy should be considered is its ability to promote economic growth without instigating crowding out. The purpose of the proposed fiscal policy is to provide a strategy for the government that would be helpful in terms of counterbalancing the decrease in private sector spendings.
Devaluation is another solution to the problem. We consider this an advanced strategy when the government is exposed to a static exchange rate. We are certain of the fact that devaluation will reinstate attractiveness of the local businesses and enhance national demand. By devaluating the currency, the government will be able to decrease export prices and make imports more cost-efficient. Similar to the fiscal policy, there is a disadvantage inherent in the strategy which involves devaluation. The problem is that it may cause short-term economic stagnation. If the government exposes itself to the increased inflation, the standards of living will majorly decrease. Moreover, devaluation is mostly perceived as a display of economic fragility. Nonetheless, we believe that the application of this strategy is an effective way to resolve the existing economic issues, and the act of currency devaluation should be taken into account by the policy makers.