Fiscal Policy Simulation

Essay by HYPERSDT November 2008

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This simulation is aimed to help students understand some of the necessary tools of fiscal policy that governments use to keep their economy. Countries are normally moving toward developing their maximum long-run potential output. The tools in this project are meant to work over a period of time in order to help attain the desired effect the government wants on their country’s economy. Other aspects that were discussed in the simulation were the multiplier and how it affects growth in the real output and the gross domestic product, GDP.

Erehwon is a beautiful yet small country that has a population of 30 million and is spread out on 440,500 square kilometers of land. Erehwon has rich mineral deposits and has great climate for agricultural purposes. Its major exports are fresh fruits and vegetables and mining is one of their major industries. Tourism is encouraged because it is one of the only contributors of foreign exchange.

Like any other newly developing country, Erehwon has many issue as well. They do not have roads or railroads to help connect their different cities to each other. They do not have effective ports for shipping or an efficient banking system. Their government has had a terrible history of high budget deficits. Erehwon has a literacy rate of 56 percent for males and 35 percent for females. As you can tell with just these few facts about the country, Erehwon is in deep trouble and is also last on the list for any foreign investments.

I was elected President of the beautiful country of Erehwon last year. Maria Alvarez was elected as the Vice President. Maria specializes in finance and economics. Frank Smith is my chief advisor and he oversees the preparation of the federal budget. It was my duty, as well as the duty...