Fiscal Policy Simulation
...ross Domestic Product (GDP) and aggregate income of the economy. The learner, who is the President of a small nation called Erehwon, will evaluate the effectiveness of changes in government spending in the Keynesian model. The learner is also introduced to topics such as the Multiplier Model, Permanent Income Hypothesis, Balanced Budget Theorem, and Crowding Out Effect. (https://mycampus.phoenix.edu/secure/resource/vendors/tata/UBAMsims/economics1/economics1_fiscal_policy_alternatives_simulation.html) Simulation answers 1. What were the effects of the changes in fiscal policy in the simulation? When the multiplier and the level of potential income are known, you have seen how the answers to these questions can be found by changing government spending and taxation. These fiscal policy tools are useful to bring the economy back on track, in situations of recession or hyperinflation. However, in reality, these questions have no optimal answers. There are several reasons for this. Government work on estimates of performance of the economy, and sometimes, these estimates could be misinterpreted. Also, the government does not always know the potential income level. This means that it does not know how much change to bring about in situations of inflation or recession, to take the economy to its potential level. 2. List four key points from the reading assignments that were emphasized in the simulation. Increasing income tax rates or cutting spending on development program, balancing the budget and fighting inflation. 3. How can you apply what you learned from the simulation to your workplace? I do not think that fiscal policy is helping economy. It takes time to plan and implement and does not necessarily provide the best results. The same thing is with our workplace, sometime we plan and try to implement new policy or procedure, and in the end it turns out, that we were better off with the old one. The new process fails, and money and time spent on the project is wasted. We should definitely think it through and try to see the big picture , try to see both positive and negative outcomes. 4. What were your Growing Further results for the assessment? There are situations where estimating the multiplier is not straightforward as in theory. In those situations, political considerations are disincentive for making ...