Section 1: International trade and exchange rates
1. Indonesia has decided to protect the textile industry
● Low currency value is the suitable process for Indonesia to revive its textile market and create competition in Global market. This strategy will help Indonesia exports be cheaper and more competitive.
● Indonesia is trying to grow strong in its textile industry, but due to Vietnam and China it is not becoming possible. The currency value of Vietnam in Dollar is 0.000043 US dollar and the currency value of China 0.14 US Dollar. It is seen that the Currency value of Indonesia is 0.000073 US dollar (Bcg.com.2020). This value is greater than Vietnam currency value (Bcg.com.2020). In case the Government of Indonesia and Central bank of Indonesia will decrease the value of its currency this country is able work more comparatively.
● However, decreased the value of Indonesian currency or deflation will create some problems and these problems must affect the Indonesian economy. Use of Deflation has become more expensive. Aggregate demand increases causing demand pull inflation. Reduce the purchasing power of citizens abroad (Bcg.com.2020). In case of mortgages in foreign currency, it will be seen that after devaluation the customer faces more difficulties to repay the borrowed principal amount. Foreign investors are not shown any kind of interest in this country to invest their capital.
2. Trading Economics
● Indonesia’s exports of clothing and material industry recorded surprising development in 2017. The industry delighted in a flood in fares of 6% year over year from $11.8 billion USD in 2016 to $12.4 billion USD. Its exchange balance was up 1.7% from $3.67 billion USD in 2016 to $3.73 billion USD in 2017. Besides, interest in the material division took off up to 68% from that of the earlier year in which residential speculation represented 61.4% (Dallasfed.org.2020). Therefore, the business rate in Indonesia’s material and piece of clothing division developed by 0.13% from 1,514,000 to 1,516,000 laborers with a use pace of 75%.
● It is seen that, due to reduction of interest rate, a country’s economy is affected by various types. The output that comes out from the reduction of Interest rate in the US. This kind of Output is not coming in the case of Indonesia. Because the US is a developed country and Indonesia is not a developed country (Gbgindonesia.com.2020). In case of under developed or developing countries, the interest rate is always maintained by a high rate. In case this rate is reduced the country’s, face banks are not able to work with efficiency.
Section 4: Fiscal, monetary and supply-side policies
● It is analyzed from Pakistan’s fiscal policy. The government of Pakistan is not able to maintain a suitable fiscal policy. It is important for this country to maintain a suitable fiscal policy for its country. It is seen that the GST tax rate of this company is very high for this reason customers have not bought. This is the main problem for this country. It is seen that a country does not have any kind of customers buying power. This country is facing various types of problems under its economy. The main target of this country’s fiscal policy is to stabilize the economy. In case of price fluctuation, the customers are not able to prepare its plan to buy any desired products. In an effective fiscal policy, it is important to maintain a suitable growth to stabilize its economy otherwise this must be faced with an economical downwards trend (Dallasfed.org.2020). According to the table it is seen that any kind of trend is not seen in Pakistan. It is seen that, in the year 2017 GDP growth rate was 4.5 but it is seen that in the beginning of 2020 this growth rate was turned negative. It is also seen from this tale that the unemployment rate of this country has increased. This is mainly occurring for the government of Pakistan’s interest rate. This country also must reduce its interest rate.
● According to many economist’s Fiscal policy is not able to control the unemployment rate of the country. Administration related lags are also present in fiscal policy, in case of government is not prepared its fiscal policy in an independent position this country is not able to maintain this any many kinds of loopholes are also present.
● It is seen that Pakistan is an underdeveloped country where customers have buying power. In case the central bank of this country maintains a high rate of interest rate this country is not able to provide customer buying power (Dallasfed.org.2020). It is seen that, present Interest rate of Pakistan is 7.5month, this rate will increase in 2021 by 10%.
● In the time of Central banks purchasing long term government bonds, this also helps this country to maintain an open market operation. It will help this country to reach money in customers’ hands and the government will also be able to support the business.
● When central banks buy the government’s long-term bonds it helps to open market operations. For this reason, customers are also interested to invest capital in business. Due to increasing production and the GDP rate of this country is also increased. It will help this country to maintain a suitable GDP for Pakistan (Dallasfed.org.2020). It is also seen that, due to the huge amount of investment new business will start and the unemployment rate will also decrease. Customers have buying power at this time so it can be disclosed that inflation rate of Pakistan can be decreased five structural changes to boost development.
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