ECO 202FINAL

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School

Southern New Hampshire University *

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Q6764

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Economics

Date

Jan 9, 2024

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docx

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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 have chosen the stagnation scenario. I found this the best option for me to stay at a steady approval rating throughout the seven-year term. The primary goal while in office is to take a slower approach while not spending anything over the $30 billion budget from year one to seven, in order to keep the GDP high, unemployment rate and budget surplus low, while the Inflation rate is average. Fiscal Policy: Taxation Table 2.1

The macroeconomic principles and models that influenced my decision making are the circular flow diagram, the possibilities frontier. The circular flow diagram allows the explanation of how the economy is organized and comes together to provide the outcome of the economy. The PPF although visuals on various combinations of goods and services before fully investing into the idea. These models are the spine of where and how resources are moved amongst the economy. The impacts of my decisions regarding the taxation policy for the income and corporate taxes were to slowly decrease the amount to allow breathing room for the GDP to increase. This was able to happen because corporate tax is the tax on the profits of the corporation while the taxes are paid on the company’s taxable income. My current tax policy implemented is to reduce taxes, which seems to provide me with an overall approval rating, inflation is increasing. Overall my decreases in taxes increases the GDP and having a government surplus allowing for some area of spending or lowering taxes more, which improve the cost of living. Currently President Biden's FY 2024 Budget proposes tax increases totaling $4.8 trillion for wealthy individuals and corporations. One detailed example of this would be the proposed increase in the top individual income tax rate from 37% to 39.6%, affecting individuals earning more than $400,000 per year. Additionally, the budget proposes raising the corporate tax rate from 21% to 28%, aiming to generate additional revenue from profitable corporations. Businesses and high-income individuals, followed by $833 billion in expanded tax credits, resulting in nearly $4.0 trillion in new taxes. The top individual federal income tax rate would rise from 37% to the pre-Trump rate of 39.6%. For example, under the proposed budget, a high- income individual earning $500,000 per year would see their federal income tax rate increase from 37% to 39.6%. This would result in them paying an additional $5,800 in taxes annually. Similarly, a profitable corporation currently paying a 21% tax rate would face a significant increase to 28%, leading to higher tax liabilities and potentially impacting their profitability and investment decisions. The corporate tax rate is set to rise from 21% to 28%, with a 15% minimum tax on corporate book profits. This change could have a significant impact on businesses, especially those with higher profit margins. The proposed tax changes also include an increase in the capital gains tax rate for individuals earning over $1 million per year. Currently at 20%, this rate would be raised to 25%. This could affect wealthy investors and potentially discourage certain investment activities. One aspect of the proposed tax plan is to allocate more funding towards infrastructure projects such as roads, bridges, and public transportation systems. This investment aims to stimulate income. The foreign income of American corporations will be subject to a 21% tax. The top individual income tax rate will rise to 39.6%. Taxpayers with incomes over $1 million will pay a 43.4% tax on capital gains. An extension of the fully refundable child tax credit is proposed through 2025, along with an increase in the maximum Child and Dependent Tax Credit. The earned income tax credit for younger workers will also be expanded. The step-up in basis on death and carried interest loopholes will be eliminated. (Scott, 2021)

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Fiscal Policy: Government Expenditure Figure 3.1 Figure 3.2 The aggregate-demand curve represents the total quantity of goods and services demanded in an economy at any price level. It slopes downward due to three factors: the wealth effect, the interest-rate effect, and the exchange-rate effect. A lower price level increases the real value of households' money holdings, which stimulates consumer spending and increases the quantity of

goods and services demanded. The interest-rate effect reduces the amount of money people want to hold, leading to lower investment spending and increased demand. The exchange-rate effect occurs when investors move funds overseas, causing the real value of domestic currency to fall in the foreign-currency exchange market, making domestic goods less expensive relative to foreign goods. This change in the real exchange rate stimulates spending on net exports and increases the quantity of goods and services demanded. Policymakers use monetary and fiscal policies to influence the economy, with changes in interest rates, bank reserve requirements, foreign exchange, and government securities impacting the money supply. Governments also influence the economy through borrowing, spending, and tax rates. Resources are affected both directly and indirectly. A national income accounting formula explains how bank reserve requirements affect financial institutions and the economy. Government securities influence interest rates and inflation through open market operations. Foreign exchange markets and central banks' interventions manage currency exchange rates and promote economic competitiveness. Governments use tax policies, government spending, and borrowing strategies to stimulate or regulate economic growth. Short-term macroeconomic stability involves raising spending or lowering taxes, while long-term objectives like improving education or infrastructure can lower poverty or encourage sustainable growth. Monetary Policies Figure 4.1

The way I have adjusted regarding the interest rate levels, was simply to eliminate government spending, by doing so I can lower the taxes as I did each year to increase the GDP, which left the inflation rate to slowly increase over time. In 2020, when the coronavirus swept the world and most countries went into lockdown, economies were hit hard by the lack of economic activity. To bolster the economy, the Fed implemented a quantitative easing program. On March 15, 2020, the Fed announced that it would purchase $500 billion in Treasury securities and $200 billion in agency MBSs to stimulate the economy. The impact of quantitative easing on the economy: Explore how the Federal Reserve's purchase of government securities during both the 2009–2014 period and the 2020 pandemic affected economic indicators such as interest rates, inflation, and GDP growth. Comparing quantitative easing measures in different crises: Discuss the similarities and differences between the Fed's approach to quantitative easing during the global financial crisis and its response to the COVID-19 pandemic. Analyze how these interventions aim to mitigate the economic downturn. The impacts of quantitative easing on the economy and financial markets during the global recession in 2008–2009 A comparison between the quantitative easing measures taken by the Federal Reserve during the Great Recession and those implemented during the COVID-19 pandemic The potential long-term effects of extensive quantitative easing programs, such as inflation concerns or increased government debt, The role of central banks, particularly the Federal Reserve, in stabilizing economies through monetary policy tools like cutting discount Global Context The volume of registered imports and exports serves as a proxy for a country's economic orientation within international trade. Free trade boosts prosperity by enabling consumers to buy more quality products at lower costs, driving economic growth, efficiency, innovation, and fairness. It also reduces tariffs, addresses barriers, encourages investment, and improves principles in property, e-commerce, and government procurement. Closed economies are self- sufficient without imports or exports, making them inefficient. There are no completely closed economies, and an open economy with fixed exchange rates has a simpler economic policy than monetary policy. In an open economy with flexible exchange rates, monetary policy should be simpler as it can affect output through a different channel. Conclusions Economic policy decisions involve increasing government spending to prioritize development and infrastructure in priority sectors. Taxation decisions can be adjusted to maintain economic stability and avoid inflation. Understanding consumer confidence is crucial in determining the outcome of economic policy decisions. If consumer confidence is in favor of the economy, the results will be seen after the proper implementation of sources. This is important because it allows for the fulfillment of actual decisions and changes in the economy, meeting the needs of the public. The state of the economy and their financial situations have an impact on consumer confidence in the current context. If consumer confidence is in favor of the economy, the results will be seen after a time of weight and proper implementation of sources. This approach ensures that the needs of the public are met, allowing for effective government spending and tax collection. In the

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Simulation of Econland this is shown through the process of adjusting government spending. I did not have any expectations when it came to the principles and models, but it has taught me various lessons. I’d say my results met my satisfaction, considering that I did not put the government into more debt. References Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning. Amadeo, K. (2022, October 4). The US National Debt and How It Affects You . The Balance. https://www.thebalancemoney.com/what-is-the-national-debt-4031393 Kenton, W. (2019). The Government’s Roll in the Crowding Out Effect . Investopedia. https://www.investopedia.com/terms/c/crowdingouteffect.asp The Effect Of Monetary Policies On The Unemployment Rate | ACE . (n.d.). https://ace- usa.org/blog/research/economic-policy/the-effect-of-monetary-policies-on-the- unemployment-rate/ Board of Governors of the Federal Reserve System. (2020, August 27). The Fed - How does monetary policy influence inflation and employment? Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/faqs/money_12856.htm Hall, M. (2022, February 14). What Are Some Examples of Expansionary Monetary Policy? Investopedia. https://www.investopedia.com/ask/answers/040115/what-are-some- examples-expansionary-monetary-policy.asp Andrew Beattie. (2020, December 16). A Concise History Of Changes In U.S. Tax Law . Investopedia. https://www.investopedia.com/articles/tax/10/concise-history-tax- changes.asp

Scott, M. P. (2021, April 29). Biden’s Tax Plan: What’s Enacted, What’s Proposed. Retrieved October 22, 2023, from https://www.investopedia.com/explaining-biden-s-tax-plan- 5080766

ECO 202FINAL

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