Lalaland Economy Evaluation

Running head: LALALAND ECONOMY 1
LALALAND ECONOMY EVALUATION
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LALALAND ECONOMY 2
Introduction
It is the wish of every nation to have better economic growth. This can only be achieved
through the adoption of sound micro and macroeconomic goals by a country. A nation can use
two policies to correct a deteriorating economic growth namely the fiscal and the monetary
policies. The country of Lalaland has a deteriorating economic growth and various monetary and
fiscal policies have been suggested which can be used to correct this economy based on the
theory of liquidity preference and aggregate demand and supply analysis.
The theory of liquidity preference views the demand for money as the desire to remain
liquid but not to borrow (De Carvalho, 2015). The money “price” is the interest rate associated
with the money. The money demand is influenced by three motives namely the precautionary,
transactionary and speculative motives (Lea & Webley, 2014). Aggregate demand and aggregate
supply analyze tools which can influence a nation’s economic growth by influencing the nation’s
overall demand and supply (Wells, 2010).
The monetary policy
The monetary policy influences a nation’s economic growth mainly by use of interest
rates (Woodford, 2011). I would suggest that Lalaland country uses monetary policy as
explained to foster its economic growth. From the data given, Laland inflation rates have
increased for the last three years from 10 to 20 percent as its economic growth has decreased
from 2 to 0 percent. Increase in inflation rates means that there is more money circulating in the
nation than its demanded meaning that a nation’s level of interest rates are low. According to
liquidity preference, consumers spend more when they hold more money. Lalaland country
should, therefore, increase interest rates through its central bank. This will enable the nation to