They've also given up an exchange rate policy
because they no longer have a separate currency.
Spain shares a currency with Germany.
Right so, they can't say, we're going to drop the value of our currency.
Okay?
And sometimes, they can't use fiscal policy very much, because of
something we're going to be talking about soon, which is austerity rules.
Reduce that budget deficit, reduce that debt, and so
in situations like this they made be left with only.
Structural policy to try to get the economy moving again.
Or maybe look at a developing country that has a very high foreign debt.
Alright, and so it's got problems with using both
monetary policy and exchange rate policy because imagine that,
that debt we know technically foreign debt is in
a foreign currency alright, imagine that debt is large.
And we know that if our currency falls in value.
The size of that debt in that local currency goes up.
We end up with a much bigger indebtedness problem.
So we can't really use monetary policy to stimulate the economy.
because if we cut interest rates to raise investment rates GDP.
Will also decrease the value of our
currency, increase the size of our foreign debt.
So what can this country do to stimulate their economy?
Well, they don't want to raise their indebtedness, they don't want to play
too much with monetary policy because the foreign debt may go up.
So, they may be only left with structural form too, to move the economy.
And the truth is that, deregulation understood in its right sense, not just
let everybody do what they want because
the economy definitely needs regulations, but going
through our regulations and finding out what really is good and useful, and what's
unnecessary and causes costs that are not
justified by the benefits of the regulation.
If we deregulate in that way,
going towards more rational regulations, this can
set in motion a process of shifting out where the aggregate supply curve
and get the economy moving again
with lower inflation, higher GDP, less unemployment
in situations where you really don't have the freedom to use your other tools
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