As a result, the unemployment rate fell due to an increase in jobs. Firms are forced to increase their salaries to retain employees who are scarce. This increases money flows to the economy because of higher wages. But, companies must make up the extra labor costs by increasing product prices to offset inflation. Because funds are readily available, consumption increases, which in turn leads to increased investment.
The 2020 Covid19 lockdown in the United States resulted in this situation. At that time, the US labor market was tight. It led to significant increases in inflation and decreased unemployment.
Open economies encourage imports and exports. Closed economies rely on their population for the required value and markets (Mankiw 2021). An open economy has the primary advantage of strengthening a country’s commitment towards quality. It allows it to either outsource certain services overseas or to import labor. This feature raises the quality requirements but risks a rise in foreign-labor-related unemployment. An open economy, by contrast, focuses on increasing internal knowledge and thereby, boosts GDP. Because demand is greater than supply, labor costs can be high.
Macroeconomic models are essential for the development of a country’s economic policies. These models emphasize the need for both contractionary and expansionary fiscal policies to reduce inflation and increase unemployment. They have an immediate impact on the quality and quantity of life. I made the right economic decisions to lower the unemployment rate and increase the gross domestic product, the government’s spending and international trade. These modifications led to an increase in total income tax that was used to finance infrastructure construction. This is proportional to GDP growth. My administration saw a decrease in consumption and investments. Since a rising GDP is an indication of increased production which can be sustained by more workers, this results in wage disputes, and inflation, the simulation worked as expected. The simulation shows that macroeconomic models can be interdependent. This highlights the need to increase international commerce to help balance growing production and the labor market.
The simulation game does not show how consumer confidence affects the outcome of fiscal measures in real life. Second, the simulation game fails to account for how long it will take the labor markets to react to changes to pay levels and ceilings. The waiting period could temporarily halt the expected change. Second, it assumes that all market participants will receive an income increase and thus can purchase the high-end goods. Because this premise cannot be applied in real-world markets, it requires the implementation of customer protection policies.