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Running head: MACROECONOMIC DECISIONS 1 Student’s Name Professor’s Name Institutional Affiliation Course Date
MACROECONOMIC DECISIONS 2 Contents Introduction ........................................................................................................................................... 3 Table 1.1 ............................................................................................................................................ 3 Taxation Policies .................................................................................................................................... 3 Table 2.1 ............................................................................................................................................ 3 Government Spending ........................................................................................................................... 5 Figure 3.1 ........................................................................................................................................... 5 Figure 3.2 ........................................................................................................................................... 5 Monetary Policies .................................................................................................................................. 6 Figure 4.1 ........................................................................................................................................... 6 Global Context ....................................................................................................................................... 7 Consumer Confidence ........................................................................................................................... 7 Conclusion ............................................................................................................................................. 7 References ............................................................................................................................................. 9
MACROECONOMIC DECISIONS 3 Introduction Table 1.1 The data used in this report is based on the Rollercoaster scenario from the Macroeconomics Simulation: Econland. The rollercoaster scenario helped me make various decisions on taxation policies, government spending, monetary policies, global context, and consumer confidence. This report will summarize the outcomes of these decisions and provide lessons learned for future policymakers. Taxation Policies Year 7 Results Table 2.1
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MACROECONOMIC DECISIONS 4 During my mandate, I put into effect tax policies that tried to find a middle ground between encouraging economic activity and raising the required funds for the government. I reduced the corporate and income tax rates, stimulating investment and consumption. Lowering tax rates can boost economic growth by giving consumers and businesses more disposable income, per the macroeconomic principles delineated in the course reading (Taussig, 2013) . It may lead to higher investment and spending, maximizing the aggregate demand. It is clear that the benefits accruing from my tax policy choice are similar to those realized in the US in the past when the tax cuts during the Reagan administration were carried out; hence, there is nothing different here. The above instances prove that reducing the tax rates can stimulate economic growth. However, it should be noted that the exact impacts of tax policy differ based on certain factors like the overall economic environment and specific tax schemes.
MACROECONOMIC DECISIONS 5 Government Spending Figure 3.1 Figure 3.2 The state of the economy influenced my decision on state spending and was meant to increase job generation and economic expansion. Faced with an economic slump, I attempted to spur aggregate demand and elevate real GDP's average annual growth rate by expanding
MACROECONOMIC DECISIONS 6 government expenditures. The "Real GDP growth" and "Unemployment rate" charts that show growth in the economy and reduced employment over the period I was the president demonstrate the impact of those reforms (Chang et al., 2019). In greater detail, the AD/AS model permits the exploration of the implications of government spending. Therefore, government spending increases to shift the AGG reg to the right, increasing output and lowering unemployment (Taussig, 2013). It agrees with the principles of fiscal policy outlined in the course's assigned reading. Monetary Policies Figure 4.1 Concerning monetary policy, my main objectives were to curb inflation and support a stable financial system. Changed interest rate levels to reduce inflationary pressure and either boost the economy or slow it down (Chang et al., 2019). For example, I increased interest rates to discourage investment and demand and thus helped to get the price level stable again. In this respect, my monetary policies are consistent with some earlier US cases, such as those observed during the Great Recession, in which interest rate adjustments were used to control inflation and promote or restrain the economy. The illustrations prove the validity of macroeconomic models, asserting that interest rate changes could be important determinants for variables such as GDP, foreign trade, inflation, consumption, and investments (Taussig, 2013).
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MACROECONOMIC DECISIONS 7 Global Context In the global environment, the effects of fiscal and monetary policy may differ in the case of the open and the closed economy. In a closed economy with little or no external relations, monetary and fiscal policy can more directly influence the home economy. Other economic impacts could stem from changes in government spending and monetary policy. The impact of monetary and fiscal policies may be more subtle in an open economy engaged in international trade. Changes that affect government spending and interest rates may also influence exchange rates and, hence, the position of domestic industry in foreign markets. The government may also change some of the trade arrangements or the tariff rates in place, leading to fluctuations in the inflow of foreign goods into the country. Consumer Confidence Consumer confidence plays a crucial role in shaping macroeconomic decisions. Since customers trust that the state of the economy is strong and looks promising for the future, they will be encouraged to increase their consumption and investments (Chang et al., 2019). These may promote economic growth, thus yielding positive impacts to the economy. Also, most consumers are tight on their finances and may defer costly investments as well as postpone massive purchases. It can be ineffective for policy implementation processes, interfering with high economic development rates. My policy choices for Econland's economy depended on the reduced customer confidence. For example, consumers increased their spending as tax rates were reduced, thus perceiving their financial situation in a positive light. As mentioned above, consumer spending became elevated due to an improved outlook for the future compared to the present. Conclusion In conclusion, during my tenure as Senior Economic Policy Advisor in Econland, I sought to promote a stable macroeconomy with high rates of growth. These objectives were
MACROECONOMIC DECISIONS 8 achieved using reduced tax rates, increased government spending, and interest rate adjustments. However, these decisions proved positive, spurring increased expenditure, investment, and national output. However, one must also bear in mind the individual features of each economy as well as the context where decisions on any public policy will be taken. Additionally, consumer confidence levels are an important determinant of their usefulness and are important for policymakers to think about seriously.
MACROECONOMIC DECISIONS 9 References Chang, X., Chen, Y., & Dasgupta, S. (2019). Macroeconomic conditions, financial constraints, and firms’ financing decisions. Journal of Banking & Finance , pp. 101 , 242–255. Taussig, F. W. (2013). Principles of Economics (Vol. 2). Cosimo, Inc..
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