eco-202-8-1-final-project-economic-summary-report

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Studocu is not sponsored or endorsed by any college or university ECO 202 8-1 Final Project economic summary report Macroeconomics (Southern New Hampshire University) Studocu is not sponsored or endorsed by any college or university ECO 202 8-1 Final Project economic summary report Macroeconomics (Southern New Hampshire University) Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

ECO 202 8-1 Final Project Economic Summary Report Brenda Berry December 16, 2021 Table of Contents 1. Introduction 2. Fiscal Policies: Taxaton 3. Fiscal Policies: Government Expenditure 4. Monetary Policies 5. Global Context 6. Conclusions 7. References Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

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 seven-year term as the chief economic policy advisor. Choosing the “base Case” for my scenario, I kept changes to the economy to a minimum as the economy was doing well from the start. By putting more emphasis on interest rates and government spending, my goal was to try to sustain Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

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economic growth instead of going into a recession. On the whole, I received an average approval rating of 80. Fiscal Policy: Taxation Table 2.1 The intent behind my taxation policy decisions throughout my seven-year term was to maintain economic growth. My decisions were influenced by the concept of free-trade and Principle 8 “a country’s standard of living depends on its ability to produce goods and services (Mankiw, N. G., 2021). Keeping these concepts in mind, I kept the changes to taxes to a minimum. As I kept the changes to the tax rates to a minimum, the impact of my changes still fluctuated. As shown in Table 1.1, keeping the tax rates low did not always result in a positive impact on the growth of the economy, but nor did raising it. However, even without making drastic changes, consumption and investment showed consistent growth. Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

(US Tax Rates-25Y) In the past 25 years, the US has sustained a constant tax rate (“United States Federal Corporate Tax Rate | 2021 Data | 2022 Forecast”). In 2018, the tax rate dropped drastically, but has been maintained at 21% for the last three years (“United States Federal Corporate Tax Rate | 2021 Data | 2022 Forecast”). This illustrates my own philosophy. As in my scenario, this keeps growth steady and allows consumption and production to carry on as usual. This example also supports macroeconomic principles in that it shows U.S. corporate tax averages and shows that taxes are a major source of revenue. Fiscal Policy: Government Expenditure Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

Figure 3.1 Figure 3.2 In terms of government expenditure, my decision was based on government taxes and spending. As mentioned before, I did not make extreme changes in taxation. However, I did Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

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adjust government spending. I steadily increased government expenditures as it can lead to a more prolific economy, manufacturing more productivity. Increasing government spending can result in more revenue for companies and households. Table 2.1 and Figure 3.1 show that as I raised government spending, my real GDP fluctuated, but overall remained high. My unemployment rate also altered, remained low overall. Monetary Policies Figure 4.1 As shown in Table 1.1, I strove to keep interest rates low. However, I noticed that keeping interest rates too low resulted in higher fluctuations in the inflation rate. While the interest rate is low inflation will rise as there is too much currency being borrowed and or spent. . In order to lower inflation, I had to raise interest rates. On the other hand, consumption, investments and foreign trade steadily increased while making changes in the interest rates. Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

While my interest rates fluctuated, they do not compare to the US’s worst inflation period. The Great Inflation lasted from 1968 to 1982, and had economists rethinking bank and federal policies (Bryan). This case endorses the validity of macroeconomic models by illustrating the relation of increasing inflation rates and sluggish economic growth. Global Context In a closed economy, investment and saving remain constant as a certain country does not interact with other nations. On the other hand, an open economy is more complex as nations trade and interact with one another. The textbook states that economist believes that “free trade between countries is mutually beneficial,” (Mankiw, 2021). For a nation to decide whether they should establish an open economy, it needs to understand absolute advantage and comparative advantage. A nation with the absolute advantage has the ability to produce a good or service using fewer inputs than another producer or country. Whereas a nation with a comparative advantage has a smaller opportunity cost than the other country to produce a good or service. When an individual, or country, “specializes in producing the good in which he or she has a comparative advantage, total production in the economy rises,” (Mankiw 2021). Knowing and understanding both comparative and absolute advantage is crucial for a nation when deciding whether or not to enter into national trade. Fiscal and monetary policies differ between a closed economy and an open economy. Fiscal policy effects “saving, investments, and growth in the long-run” (Mankiw 2021). Within a closed economy, fiscal policy and monetary policy will have little influence in the long run. The first is due to savings and investments within a closed economy being consistent. Secondly, there Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

is no trade within a closed economy to be impacted by fluctuations in interest rates. Conversely, an open economy is strongly influenced both by fiscal and monetary policies. Conclusions Overall, the study of macroeconomics is an analysis of the whole economic system of a nation. This analysis looks at many facets, such as: supply and demand, national income, savings and investments, price levels, and employment levels. The aim of economists is to better understand the causes of fluctuations in these characteristics in order to formulate policies that will ensure the best possible outcome for a nation. Within the simulation, the end results were not quite what I expected. While I do believe that I made some decent policy decisions for Econland, I struggled to make changes that allowed for positive results without having a negative impact. Increasing economic growth while controlling inflation was the most difficult aspect of the simulation. In the end, most of my decisions were based on finding a balance between external factors and consumer confidence. The economic indicator “consumer sentiment” is relevant for making successful policy decisions as it gauges just how confident consumers are regarding the overall status of a country’s economy. Consumer sentiment also assesses how sure people feel about their personal income’s stability. As stated in Why consumer confidence is an important economic indicator , “as a result, consumer confidence is a key indicator for the overall shape of the economy,” (Jain). Basically, consumer confidence is a vital influence that affects the willingness of consumers to spend, borrow and save within their economy. Throughout the simulation, consumer confidence stayed steady with few variations. The highest rating for consumer confidence was in year 3 at 103. This indicated that even though I struggled to find a balance with in Econland’s economy, Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

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consumers were, for the most part, confident enough in the economy to spend money rather than save money. A decrease in levels of consumer confidence habitually indicates an economic recession. To encourage a higher level of consumption, a high level of consumer confidence is essential. Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

References Bryan, Michael. “The Great Inflation | Federal Reserve History.” Home | Federal Reserve History , 22 Nov. 2013, htps://www.federalreservehistory.org/essays/great-infaton . Jain, Surbhi. “Why Consumer Confidence Is an Important Economic Indicator.” Yahoo Finance - Stock Market Live, Quotes, Business & Finance News, Yahoo Finance, 5 Sept. 2014, htps://fnance.yahoo.com/news/why-consumer-confdence-important-economic- 170019558.html? guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig =AQAAACtX-ePCvWvXgUIMNifquQ7s1pGI3kE5WTOFcxLbC2zl- 0xnXc_Lk3j0d9oabVKIJJy9onKhfbrW_nJVLAKvTipsaaarTLkA0lS1et6LwTpAyJ6KdBD6blfBZ yYWFTNcVHTPU0Xlqrbdt9w9iHxHFBvVk9f4CyNdV-jzAxBE87 . Macroeconomics Simulation: Econland. (n.d.). htps://forio.com/app/harvard/econland/index.html#results . Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning. “United States Federal Corporate Tax Rate | 2021 Data | 2022 Forecast.” TRADING ECONOMICS | 20 Million INDICATORS FROM 196 COUNTRIES , 2021, htps://tradingeconomics.com/united-states/corporate-tax-rate . Learning, Lumen. “Reading: Growth and Recession in the AS–AD Diagram | Macroeconomics [Deprecated].” Lumen Learning – Simple Book Production , https://courses.lumenlearning.com/macroeconomics/chapter/growth-and-recession-in-the- as-ad-diagram/. Accessed 22 Nov. 2021. Downloaded by Victoria Stone (vdivita04@gmail.com) lOMoARcPSD|15451662

eco-202-8-1-final-project-economic-summary-report

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