Fiscal Policy Simulation
In this paper I will be discussing the effects of the changes in fiscal policy in the simulation, I will discuss the effects of changes in fiscal policy using the aggregate supply and aggregate demand framework, I will list four key points from the reading assignments that were emphasized in this simulation, I will apply what I learned from the simulation to my workplace, and I will discuss my growing further results from the assessment.
Effects of Changes in Fiscal Policy
What were the effects of the changes in fiscal policy in the simulation? In the first scenario of the simulation, Frank, the Director of the Budget Office, states, "We have to increase jobs in the economy and improve overall confidence in the future of the economy." Keeping this in mind, I opted to increase government spending on infrastructure by $300 million, decrease spending on education by $100 million, and reduce income tax rates by 0.5%. The effects of fiscal policy in the simulated year of 2xx6 shrank the unemployment rate from 6.32% to 4.62% and improved popularity from a score of 3.2 to 3.68. For this scenario, the changes in fiscal policy brought positive results to the economy of Erehwon.
The first scenario begins with the announcement of an inflationary problem in the economy. The scenario specifically states, "In the fourth year of office it has been decided to use fiscal policy measures to bring inflation down, which means reducing incomes in the economy." I decided to cut government spending on education by $600 million and increased the income tax rate by 1%. These measures resulted in an increase in tax revenues by $200 million, a reduced budget deficit by 2.1% of GDP, a sustainable GDP that is close to the long-run potential output. Infl ...