Fiscal Policy Simulation

Essay by davelong13University, Bachelor'sA, June 2007

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Fiscal Policy SimulationWhat are the effects of the changes in fiscal policy in the simulation?The formula of fiscal policy affects the popularity of a presidency, the unemployment, the gross domestic product (GDP), the government tax revenue basis, education expenditures; however, a major example of the effects of the changes in policy cannot be reaped immediately. A recession may take time to resolve the intent of controlling inflation, maintaining the right balance of government spending and/or tax revenues achieved. Therefore, at times, a fiscal policy of one administration might not be achieved until another administration is in place. In the simulation, the real GDP of the economic future is realized through attempts of trying to increase or decrease infrastructure spending and education spending. An inquisitive factor was the importance of popularity. Decisions were required to either prioritize popularity or prioritize infrastructure and inflation, for instance. Reducing taxes, for instance, might be a popular decision by a President more than increasing the government expenditures on infrastructure or education.

However, if we did not increase government spending, then we could not decrease unemployment and the development needs of the country.

Four Key PointsThe first key point from the readings that was emphasized in the simulation was the concept of fiscal policy. Fiscal policy is "the deliberate change in either government spending or taxes to stimulate or slow down the economy" (Colander, 2004, p. 583). This is a controlled by the government and politicians, in contrast to monetary policy, which is controlled by the Federal Reserve Bank and influences the economy by changing the banking system's reserves. Fiscal policy was a central theme in the simulation. Each section of the simulation presented different scenarios for what was currently happening in the economy, and the participant is asked to create a fiscal policy in...