The GDP (Gross Domestic Product) can be defined as the sum of the
             money values of all goods and services produced in the domestic economy
             during a specified period of time, usually one year. Certainly most
             economists would agree that a GDP of 1.5% is too low for a country and that
             a healthy GDP growth would be between 3-4%. I will attempt to give some
             possible solutions and outcomes as to how to increase GDP, through fiscal
             as well as monetary policy. The inflation rate given in our example is at
             1-2% which certainly would be considered low. It could be said in our
             example that we are teetering on the brink of deflation.
             Deflation (a sustained decrease in the general price level) can be a
             major problem in the long run. In a deflationary economy, which by the way
             has plagued the Japanese economy for a number of years, people don't buy
             things because they think prices are going to drop even further so they
             wait. Manufactures get surpluses so they stop production and layoff
             people. Deflation is very bad for stock portfolios, real estate, corporate
             earnings, and commodity brokers. Deflation certainly would cause the
             However, there can be "winners" in times of deflation. Generally
             people living on fixed incomes, most notably the elderly would benefit from
             lower prices. People who are savers, people who rent, and people who hold
             high quality government bonds would benefit as well.
             In our given problem, we have been told that unemployment has slowly
             crept up from 6.5% to 7.5%. The thing to remember about unemployment is
             that it can be broken down into the various types: Structural unemployment
             occurs when people's skills are no longer needed. Seasonal unemployment -
             an example would be construction workers not working during the winter
             months. And cyclical unemployment, whi...