Economy

Part 1 - Currency, Interest Rates and Inflation

Floating exchange rate:

- Determined by the private market by supply and demand

Fixed eate set by the central bank or currency union/organization

Currency appreciation:

- The increase in value of currency - High interest rates causes appreciation - Low inflation will may cause currency value rise - Strong currency stimulates imports - make exports more expensive to export

Currency depreciation:

- The decrease in the value of currency - Lower interest rates causes depreciation - Higher inflation may make currency value fall - Weak currency stimulates exports - makes imports more expensive to import

Interest rates:

- Interest rates are used to try and achieve low inflation and economic growth

Effect of high interest rates:

- Higher interest rates increase the value of the currency - reducing exports and imports which will start reducing aggregate demand in the economy - Reduced investments, consumption, increased cost of borrowing and increased cost of banking - Government debt interest payments will increase - Impacts growth, inflation, employment, housing, poverty, purchasing power and currency

Effect of low interest rates:

- Lower interest rates decrease the value of currency - increasing exports and reducing imports which will become more - Increases consumption, cheaper borrowing costs and rising asset prices - Government debt interest payments will decrease - Impacts growth, inflation, unemployment, housing, poverty, purchasing power and currency

What is the main point of the interest rates?

- Interest rates keep inflation and economic growth at sustainable rates

What is a normal interest rate?

- A normal interest rate is around 1-5% and in extreme monetary measures above 6%

Hyperinflation:

- Causes money to lose value at a rapid rate that nobody wants to use it as a medium of exchange

Inflation:

- Is the rate and rise in cost of living as prices in goods and services become more expensive - Leads to decline in the value of money, value of savings, decrease in investment and decline of exports

Deflation:

- A fall in the price level of the economy - A slowdown in the rate of increase of the general price level of goods and services in a country GDP over time

Demand pull inflation:

- When a rise in prices are caused by a rising aggregate demand - businesses and services raise prices due to the shortage of goods

Cost push inflation:

- When a rise in prices are caused by a rise in the cost of production, oil, fuel and other production necessities

Why is sustainable inflation important?

- Inflation is a very tedious task to keep in check - Inflation measures the worth of the country money, purchasing power, the prices of consumer and business product index

How do I reduce inflation?

- Inflation is connected to the growth rate, interest rates and unemployment - Having a growth rate under the normal rates such as 3-4% in a developed economy can keep inflation rates in check

What is a sustainable inflation rate?

- The recommended range for inflation levels is 1.00 - 2.60%

Part 2 – Taxes

Taxes is one of your very important incomes, the other one being trade. There are many different kinds of taxes, and many, not all of them have secondary implications that go beyond giving you more money to spend on your country.

Changing taxes is a very delicate thing to do and in a democratic state you shouldn't try to change any tax with more than 0.2% - 0.25% at a time since large changes will be met by hostility from your parliament, will not be approved and sometimes you will get criticized for being too hasty and your popularity will decrease.

In other states you can probably change the tax by 0.5% at a time making transitions easier. You should always do polls before trying to pass taxes.

Two of the most important taxes are Income and VAT.

You should try to balance your taxes in accordance to the political orientation of your country. That is social/leftist countries impose taxes which promote equality on their peoples income, so use high income tax, property tax, wealth tax, etc. It is also wise to remove any rightist taxes, such as VAT. The opposite of this applies for right wing countries.

Part 3 – Inflation

One of the important issue in your economy is the inflation, it's probably also the hardest aspect of the economy and a very tedious task to keep it in check. Inflation is in short the worth of your money but it's also a measure of prices on consumer products in your country. In GPS inflation is connected to both growth and unemployment.

When you start a new game your number one thing to do is to check the inflation in your country, if it's too high you will need to raise the Interest Rate to get the inflation down and if it's too low you will have to lower the rate. This is the basics of inflation and it doesn't seem that hard at first but you will soon figure out that the inflation is like a wild horse trying to run away so you need to check it often and counter with changes in the interest rate.

A low inflation will do two things: First of all, it will reduce your total budget income and the second effect is reducing your total budget expenditures. The drop in expenses is huge compared to the drop in income, and in the long-term your income will grow because of your now-healthy inflation rate.

You’ll have to make a judgment call on what you consider to be high inflation but the recommended range is 1.6% to 2.6%. Once you have your inflation within spitting distance of 2%, keep it there. That means you have to keep a close eye on the Currency tab.

Note that this doesn’t apply on EU countries since the Euro is a fixed currency and it has been established you can't change it. The option to leave the Euro completely for this particular game, doesn't effect many things.

Part 4 – Budgets

Now that your inflation is set, your economy will be on a good foundation and you’ll be able to do a lot of budget tweaking. Prosperity should follow on the heels of a healthy currency, so you should be set as far as the economy is concerned. Plus, your people will like you for fixing the economy.

Most countries will either start with a negative cashflow or very small budget margin and this means cutbacks at least to begin with.

One good suggestion is getting rid of the National Service since it costs you several billion dollars/euros/pesos/yen or whatever your currency happens to be in order to maintain a conscripted military. Make a note of how many conscripts your military has, and after you abolish conscription, add the number of conscripts you had into your regular military recruits box. This will keep your military strength at the same level as before, so your army won’t hate you forever for ending the draft. And believe me, the army is the last group in your country that you want to offend.

Of course, if you don’t already have a draft, then you’ll have to cut funds from elsewhere. A sound budget cutting policy is this: No more than a one star decrease per week.

However, another sector where you can safely cut expenses is the Health tab, more precisely in the first three categories. They are a huge burden on your budget, since every star could cost also billions of your currency. If you cut these categories no one will blame you, you won't loose your hardly-gained reputation, and you can also spend a part of the money you raised from these cuts in the last categories (the ones of the orphan and genetical diseases, cancer, AIDS, etc.) or you can also increase the number of doctors. With these last actions you can boost a lot your reputation, especially in the first days of play.

Part 5 - Trade

Hopefully by now your economy is standing up on its own. Now that you have a lot of money, you can focus on more important things, like getting more money. You'll need all the money you can get. Never are you going to utter the phrase "I have enough money" while playing GPS.

The best way to do this is by economic agreements with other countries. You might be wondering "Why didn't you have me do this back in part 1 when I actually needed all that money?" and the answer is this: Because your economy sucked. Now that your economy is good the benefits of trade agreements can be maximized.

Anyway, some find this harder to do than others but a little wisdom is all you need. The first thing to do is find out what your country produces too much of. Go into the Economy screen (AKA the Agriculture, Industry, Services, and Energy window. I really don't know why they didn't just call all of that the "Economy") and find your excesses. Now go to the upper left corner where the spinning globe is, next to it there are six icons that show different map overlays. Click the one that says "Economic Relations" or something like that. That brings up a lovely Technicolor map overlay of all the countries with whom you're on economically good terms. Green countries are ones that like to trade with you. Red countries don't. See where I'm going with this? Only attempt trade agreements with green countries.

Pick a few countries out of that group and meet with their leaders. Exchange cordialities, offer them coffee, compliment their country, then get them sauced. Now make a deal. Drunk leaders always make the best deals. Go into the economic treaty screen and propose a "Annual Volume of Sales" treaty. Always do the "Sales" one, because that means you're going to sell resources to the other country. Pick the resource that you have too much of. Sometimes the country you're meeting with has an excess in that resource, too. If that's the case, meet with another country. Your best bet for making the agreements work is if you sell to a country that is lacking in that particular resource. The AI calculates need before want into whether or not a country will accept your proposal. Then you pick your price. I suggest jacking it up by a few hundred dollars. The other country will always counter by suggesting a lower price, which you can raise a little more, and then an agreement is reached. It's just haggling. A drunk head of state helps, too. Also make sure that you aren't selling under your average sale price, same for when you buy, don't buy product above your average purchase price.(note: the AI will never accept a deal under their sale price when selling and above their purchase price when haggling so if you see that the average price of a product you're trying to buy/sell is too low/high for a country try trading with someone else). Then you choose the amount of years you want the deal to cover. ALWAYS CHOOSE ONE (1) YEAR. This means that the deal will be completed at the end of the year, meaning that at the end of the year you will be paid in full. You won't have to wait around 2 or 3 years to get all of your money. This way is the fastest, and if the other country is really in need of the resource, they will want a one year deal too.

Now you'll see your income steadily rise, granted that the deal was worth a lot of money. Just repeat the process until you start netting at least a few hundred million. You can now safely start allocating money into your domestic budget. Right off the bat, raise your Secret Services agent training and terrorism bars to at least 9 stars. Then start infiltrating terrorist networks, dismantling them, and repeating. Put money into the important public areas like health, welfare, public safety, education, and youth. Those areas are your Big 5, and will make or break you throughout the game. By clicking the arrow under your name you'll switch to Popularity mode, which indicates how the population feels about your actions as head of state. When a frowny face appears next to any one of the Big 5, you'd better take notice and do something about it. Keep your population happy. And always keep your eye on that inflation.

Below are infographics showing each sector needs, in general terms if you want one sector to grow, you need fill out the need for the sector, either by buying the goods needed or producing them yourself.(Void means that this particular sector don't depend on another one, meaning you can start growing it without needing anything)

As you can see one the most critical sector in the game is the Water supply networks which is needed for almost all farming and mining related sectors. ALWAYS make sure the needs for water is satisfied otherwise your economy will start stagnating or importing water at bad prices.

Now below are infographics describing an Import/Export Strategy at the start of the game, there are 5 columns:

1. Best Importer: This column shows which countries offers the best prices for you to export your product.
2. Best Exporter: This column shows which countries offers the best prices for you to import product
3. Biggest Importer: Self-explanatory
4. Biggest Exporter: Self-explanatory
5. Product

Keep in mind that the best importer/exporter don't always have a lot of product buy/sell.

Also the services sector is not pictured here because services seems to be traded automatically.

Finally over the course of the game the prices will vary and render parts of the list obsolete, this is still a decent list to use as guidelines to help you buy/sell product.