Fiscal Policy
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Throughout the simulation crucial decisions were made to increase economic growth, develop adequate infrastructure, and encourage private enterprise to positively affect Erehwons economic status. With the increase in government expendure towards infrastructure and educational programs, preseidentail popularity numbers increased. Also, increased governmeanal expenditure created an increase in real gross domestic product. As the gross domestic product numbers rose, consumer incomes increased while unemployment numbers fell. The decrease in unemployment was due to governmental expenditure towards infrastructure. Jobs were created for the citizens of Erehwon through airport and highway expansion projects funded by the government.
The second decision made by the president also led to a higher popularity rating. Increased government spending towards education and infrastructure led to the increased popularit rating. The income tax rates were not altered at this time. Reducing taxes can increase popularity more then increasing government spending however, by just reducing taxes you can not fulfill
the populations need for development which is why governmental expenditure was chosen at this time. The fiscal policy decisions made throughout the simulation had an impact on real income and real gross domestic product of Ehrwens economy for the future. The decisions made were successful for the conditions of the econmy and put the economy on the right track towards positive economic growth. The decisions made lead o the country moving closer to the economys long run potential output.
Real economic decisions are not as easy to tackle in real life scenarios. Economists argue forecasting is an art, not a science. Economists must be able to indentify a few key contribuotirs to economic success before mapping out a game plan. The solutions to economic woes are not as easy as identifying whether or not the economy is in a recession or not. Ecoomists must identify the situation and contributing factors which will aide towards creating a plan of action for the economy. Economists need to identify the level of potential income and target rate of unemployment. These ideal scenarios will aide in helping economist identify the multiplier for the aggregate demand and supply curves.
Governments rely on large macroeconomic models and leading indicators to predict what path the econmy will be on later down the road. After identifying target potential income and target rate of unemployment, the government can determine the size of the multiplier. Once the multiplier and economic factors have been explored, recoomindtions of either using expansionary or contractionary policies can be choosen. As seen in the simulation, the government has flexibility in changing taxes and governmental expenditure. Fiscal policy is defined by the deliberate change in either governmental spending or tax rates to simulate or slow down the economy.