Suppose a country has a rate of inflation well below its target rate, high unemployment and a large balance of payments deficit.
What would an economic advisor to the government be most likely to recommend?
a long-run supply side policy, aimed at improving the country’s efficiency, so improving both the unemployment and the balance of payments positions
2 )
a revaluation of its currency, because that would lead to reduced unemployment and an improved balance of payments
3 )
a rise in interest rates, because it would lead to an improved balance of payments and help achieve the inflation target
4 )
a rise in levels of direct taxation, because that would improve unemployment and move inflation in the direction of a target level
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