Since I wanted to learn more about the impact of fiscal policy changes on short-term economic performance, I decided to perform a simulation this week. Because it was an interesting new experience, I also chose to do a rollercoaster simulation. If you want consistent results, dramatic changes are best avoided. You should instead study how small changes can have an impact on the desired outcome. To increase gross domestic product (GDP), for example, I would gradually lower interest rates. To increase client trust, I would also reduce the income tax by small increments. My most successful initiatives were to control corporate taxes and stimulate job creation and investment. I also changed interest rates to increase spending, rather than decrease savings. The simulation provides a global economic view each year by revealing what’s happening in other countries. Imports and exports are unrestricted in an open economy, since there are no trade restrictions with other nations (Uribe and Schmitt-Grohé, 2017). A free economy benefits local companies by sustaining their output. Investors can increase employment prospects and thus raise the income tax the government receives for spending. An open economy can result in unfair and unjust competition among domestic companies, particularly when imported goods are cheaper due to economies of scale. On the contrary, a closed economy hinders international commerce, favoring local commerce. (Razin, Yuen, 2002). The benefit of this method is that it emphasizes the creation of stable markets for local goods. This is especially true when large amounts of the economy depend on one domestically produced or farmed product. It reduces domestic import competition, which in turn boosts domestic manufacturing. However, this strategy comes with a major drawback. It reduces the production capacity of local producers, who can’t export their surplus goods. This increases the rate of unemployment. Investors, economists and governments all rely on consumers for their assessments. The government gets a higher approval rating when there is high consumer confidence. This happens because people have faith in government’s ability to grow the economy, increase spending on infrastructure and health and safety, as well as other areas. The confidence it gives to economists, or the people in charge of the economy, allows them to make bold choices and not fear public reaction. They are therefore able to take greater risks during times of low customer trust. Firms and investors expect a surge in spending when there is high consumer confidence. This is because they believe that a future income stream will be possible in this economic environment. If consumer confidence drops, people have less faith in the economy, which will lead to lower spending, higher savings and a recession. In my tenure, I placed a high priority on boosting consumer confidence. The result was more spending, lower savings, and higher GDP due to increased demand. As a consequence, I received a high grade.
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