By raising
the level of GDP(Gross Domestic Production) you also increasing the level of economy.
What is GDP? Gross domestic product (GDP) is the market value of all
officially recognized final goods and services produced within a country in a
given period of time. GDP per capita is often considered an indicator of a
country's standard of living
There is some ways to increase GDP. First, have more
people working, If an apple farmer in Malang own 90 acres of land. But he can
only plant 40 acres by himself, then if he hires a helper, he should be able to
plant 80 acres of land, he's just doubled the amount produced. If he hires a
2nd hand then they should be able to plant the full 90 acres, either by
planting 40 acres, 40 acres, and 10 acres, or by each planting 30 acres. The
2nd helper didn't increase production as much as the 1st, but there was still a
net increase. However, if the farmer hires additional helpers, there won't be
any increase, because all of his land can be planted by only 3 people.
This leads into the 2nd way to increase GDP, have
people work more efficiently. If the farmer in Malang was able to plant 40
acres, but only had his seed and a shovel, then you could increase his
productivity by giving him a horse and a plow. Using the horse and plow the
farmer might be able to plant all 90 acres by himself.
What does all of that mean on a macro scale?
It means that if you reduce interest rates, you can make access to money easier, making it more likely that more farmers will end up with plows.
If the value of our currency drops relative to other currencies, it means that we increase demand for our products, because if the farmer can only sell 40 acres worth of crops each year, there really isn't any point to increasing his productivity.
Increasing productivity also allows us to reduce prices, because with the horse and plow, 1 farmer can now do as much as he and 2 helpers could do before. With the money he saves not hiring helpers he can pay for the horse and plow, save a little something for himself, and still reduce the price of the crops he sells.
It means that if you reduce interest rates, you can make access to money easier, making it more likely that more farmers will end up with plows.
If the value of our currency drops relative to other currencies, it means that we increase demand for our products, because if the farmer can only sell 40 acres worth of crops each year, there really isn't any point to increasing his productivity.
Increasing productivity also allows us to reduce prices, because with the horse and plow, 1 farmer can now do as much as he and 2 helpers could do before. With the money he saves not hiring helpers he can pay for the horse and plow, save a little something for himself, and still reduce the price of the crops he sells.
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