Fiscal Policy Simulation

Essay by nferttA, July 2008

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"Fiscal policy is the use of the government budget to affect an economy" (Weil 2002, para. 1). Fiscal policy is measured by observing the difference between what the government's intake and the government's output. When the government's revenue is higher than the expenditure, the policy is said to be tight. On the other hand when the government's revenue is lower than the expenditure the fiscal policy is said to be loose (Weil, 2002).

The fiscal policy simulation shows an environment in which fiscal policy decisions need to be made and the outcomes are studied. After completing the simulation a better understanding of how the government applies tools in the fiscal policy in order to improve the economy was attained. The simulation explains the effects of the changes in the fiscal policy. Four key points were emphasized in the simulation which will be further discussed.

Effects of Changes in Fiscal PolicyThe first scenario presented on The University of Phoenix simulation (2007) is set in year 2XX6.

In 2XX6 the feedback obtained was to find ways to fight recession. The budget deficit can not increase past 5% of the gross domestic product (GDP).

The team's, which is composed of Maria Alvarez (Vice President of Erehwon) and Frank Smith (Director of the Budget Office), suggestion is to deal with the unemployment issue first. The team suggests that more jobs can be created by increasing the spending on infrastructure and spending more money on education. The team's suggestions will be taken into consideration when making the final decision.

The final decision has been reached. The final decision was to increase the government spending on infrastructure by $100 million, increase the spending on education by $100 million and decrease the income tax rates by .05%. The decisions on the fiscal policy changes in...