Fiscal Policy Essay

995 words - 4 pages

Aside from creating and enforcing regulations and laws the government has an important part in encouraging and fostering economic growth. One of the ways that government can manipulate the trends in the economy is called a fiscal policy. A fiscal policy according to Colander is an intentional change made to governmental spending or taxes that leads to either stimulation or a slow down in the economy (2004). The contents of this paper will show and discuss the effects of the changes in fiscal policy in the simulation and will highlight four key points from the reading assignments that were emphasized in the simulation. In addition there will be a discussion on the application of what was learned in the simulation to a familiar organization. Lastly there will be a summary of simulation assessments.Erehwon Fiscal PolicyIn the first simulation scenario it is year 2xx6 and Erehwon is facing a recession. Frank Smith is concerned about increasing employment as well as raising public popularity levels. As president I decided to increase government spending for infrastructures by 200 million dollars. Increasing the budget for infrastructures allowed the development of the highly needed public systems that can now link up the different regions of the country. In addition the development of infrastructure is geared towards the skilled labor force that the country has which are construction, engineering, and design. In increasing the budget the unemployment rate went from 6.32% to 4.41%. There was also an increase in government spending on education for low income students. Education is crucial in Erehwon but increasing the budget did not lower unemployment levels because there is a shortage of trained faculty in the country. Furthermore as president I also opted to increase income tax rates. Rates went from 0% to .50%. Increasing tax rates will rake in $100 million dollars in tax revenue for the country. The decisions made increased the real GDP from $39.70 to $41.27.Year 2xx8The second scenario calls for a fiscal policy to be used to reduce the inflation rate via reducing the incomes of the countries populous. I opted to cut government expenditures by $400 million. In doing so this increased the unemployment from 3.53% to 4.55%. The low income student educational program budget was cut by $200 million dollars as well. In addition the decision was made to not change the income tax rate which was at 0%. The policy that was implemented hit my popularity level as it dipped to 3.4. Due to the decisions made the inflation level for the country did indeed decrease, however the real GDP in the economy decreased to $41.16 billion.Year 2xx9The third scenario calls for a fiscal policy to help fight recession. As president and advised by Maria Alvarez I increased expenditures for educational programs by $200 million ea. In addition there was an income tax decrease by .50% which will decrease income tax revenues by $100 million. Due to the implementation of the policy...

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