Answer to Question #180747 in Economics for Abhishek Upadhyaya

Question

In country X, the unemployment rate is 13%, the interest rate is 19% and the GDP growth rate is 3%. The goal is 5-5-5, i.e., 5% inflation rate, 5% unemployment rate and 5% GDP growth. Assume that you are the Minister of Economics. Do you think you can achieve this goal using a single policy instrument? Why or why not?

Answer 1

If the goal is 5-5-5, i.e., 5% inflation rate, 5% unemployment rate and 5% GDP growth, then it would be difficult to achieve it using one single policy, because, for example, if we use expansionary monetary policy and as a result decrease interest rates, then the GDP growth will increase and unemployment will decrease, but the inflation rate will increase.

So, it should be a mix of several policies, for example, both fiscal and monetary policies.