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The president of Mexico has asked you for advice on the likely economic consequences of the following five policies designed to improve Mexico’s economic environment. Describe the consequences of each policy and evaluate the extent to which these proposed policies will achieve their intended objective.

a. Expand the money supply to drive down interest rates and stimulate economic activity.

b. Increase the minimum wage to raise the incomes of poor workers.

c. Impose import restrictions on most products to preserve the domestic market for local manufacturers and thereby increase national income.

d. Raise corporate and personal tax rates from 50% to 70% to boost tax revenues and reduce the Mexican government deficit.

e. Fix the nominal exchange rate at its current level in order to hold down the cost to Mexican consumers of imported necessities (assume that inflation is currently 100% annually in Mexico).


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