ECO 202 Project Template

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Jun 11, 2024

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ECO 202 Project Template Economic Summary Report Table of Contents 1. Introduction 2. Fiscal Policies: Taxation 3. Fiscal Policies: Government Expenditure 4. Monetary Policies 5. Global Context 6. Conclusions 7. References Introduction For the benefit of the incoming administration, I submit this report to document, analyze, and interpret the macroeconomic policy decisions I made as the chief economic policy advisor of Econland. The purpose of this document is to further our national prosperity by deepening our understanding of the relationship between macroeconomic policies and their consequences for our citizens. The report includes a thorough accounting of the major fiscal and monetary policy decisions made over each of the seven years of my term, as well as an explanation of the underlying rationales for those decisions and the resulting impacts of those policies.

Table 1.1 The table above summarizes the macroeconomic climate of Econland over my term. I chose to go with the high economic growth and volatility. Overall, my performance started out being scored high at a score of 75. As I played around with the factors, my score decreased dramatically. The first year I tried not to make any drastic changes, but as the years went on I wanted to see what would get me the highest scoring. Fiscal Policy: Taxation Table 2.1 During my seven-year term, my taxation policy decisions were driven by a combination of macroeconomic principles and models aimed at achieving specific economic goals such as promoting growth, ensuring equity, and maintaining fiscal stability. The macroeconomic principles that influenced my decision-making would be the progressive taxation system and corporate tax rate. I had all intentions of keeping the corporate tax the same but decided to lower it to assist corporations. Income tax typically stayed around 27% and I tried not to move it much. I did lower the inflation rate to 1% to see that it helped with the real GDP a lot. This allowed for a much lower unemployment rate as well.

In the simulations, I typically kept the corporate tax rate at 30% as normal. I did adjust it a few times from year 2 to year 5 to see the outcome it may have on Ecoland. I had a higher overall score when I kept the corporation taxes higher at 30%. When I lowered it to 20%, my score dropped more than 30 points. The United States currently has a corporation tax of 21%. The idea was to mimic a real- life situation to see if I would get the same outcome. Fiscal Policy: Government Expenditure Figure 3.1

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Figure 3.2 During my seven-year term, my decisions regarding government expenditure were tailored to the prevailing macroeconomic conditions, with the intent of stabilizing the economy, promoting growth, and ensuring long-term fiscal sustainability. My fiscal policy decisions were dynamically adjusted based on the macroeconomic environment, with the intent of stabilizing the economy, promoting equitable growth, and ensuring long-term sustainability. The use of counter-cyclical fiscal policy targeted social spending, public investment in key sectors, infrastructure development, fiscal consolidation, and green investments reflects a balanced approach to managing government expenditure in response to changing economic conditions. When I lowered the interest rate to 2.5%, the income tax rate to 25%, and the corporate tax rate to 27%, I was able to score a 75 and increase the real GDP to lower inflation, and lower unemployment rates. This was the most positive yield I got from the simulations. In other years, I tried increasing the interest rates and income tax rates, which led to a lower GDP, higher inflation, and high unemployment rates. Monetary Policies

Figure 4.1 As I changed the interest rate levels, it made inflation and GDP fluctuate the most. I noticed if I kept the interest rate at 3% or below, the real GDP was higher, and the inflation rate was lower. For example, when the interest rate was at 2.5%, the real GDP rose to 110 and the inflation rate was low at 2.5% as well. I believe that there are many similarities between the simulation and current examples in the United States. The interest rates affect inflation, the real GDP, and consumption as well in real life and in the simulation. This shows just how much these rates affect the United States as a whole. When one is adjusted just slightly, it can impact the other factors, so it is important to pay attention to what works. When I adjusted the corporate tax to 21% to reflect the United States' current position, it lowered the real GDP and increased inflation. Global Context Openness to trade brings both opportunities and challenges. While it can enhance economic growth, consumer welfare, and technological advancement, it also introduces risks such as increased economic volatility and income inequality. The impacts of monetary and fiscal policies differ significantly between closed and open economies due to factors like capital mobility, exchange rates, and trade dynamics. Policymakers in open economies must consider these additional complexities when designing and implementing economic policies to ensure desired outcomes and mitigate potential adverse effects. Conclusions My economic policy decisions did not produce the results I initially anticipated. It felt like no matter how I adjusted the rates, I could not get each category at a decent level. The GDP was either too high or too low, the unemployment rates were the same as well. If it positively affected one portion but negatively affected the others. I struggled to keep all categories at a positive level. Overall, I do not believe that the economic principles and models behaved in the way I expected. I thought it may be easier to get a high approval score while still having higher rates, but that just wasn’t sensible. Consumer confidence plays a crucial role in shaping the outcomes of macroeconomic policies. It reflects the degree of optimism or pessimism that consumers feel about the overall state of the economy and their financial situation. High consumer confidence typically leads to increased consumer spending and investment, while low consumer confidence can result in reduced spending and economic slowdown. References Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning. Learning, L. (n.d.). Macroeconomics . https://courses.lumenlearning.com/wm- macroeconomics/chapter/growth-and-recession-in-the-as-ad-diagram/

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