Yes we need mroe specifics to figure out what's going on here.

An example of what I mean is instead of saying "the chain feels loose", saying for example "When I am in the small front and largest rear gears, the chain feels loose". Thae way, we know when it's acting this way.

Oh, and Jeff is spot on. The deraileur is supposed to allow the chain to flop around a bit. If the chain has a slight amount of sag, it's ok...any more and you might need a link pulled out of it....take it to a bike shop for that.

The rear deraileur does have a large lower jockey pulley. This is normal for entry level components. one answer is to get a better rear deraileur. Again hit a bike shop....but it is not going to be a $10 upgrade...it's going to be at least $50 once you factor in labor.


edit: and a full parts list as well as info on your riding style or aspirations helps when you are looking to ask for upgrade parts. There are sooooo many different riding styles that fall under "mountain biking", from cross-country riding (no jumps, some log hopping and riding over roots/rocks, to freeride (lots of jumps), to downhill racing, to trials (controlled low speed maneuvering/jumps...it's an art), and others I may have forgotten...and each style has different demands on the components.