Discussion Question Response Macroeconomics Week 7

Discussion Question Response

Susanna Devi -

· Share your experience in the simulation. In your opinion, which policy decisions were more successful and why?

I chose to do the Rollercoaster simulation because I felt it was more aligned with how things change on a regular basis. In year one I decided not to make any changes to see how it would affect the outcome. The last time I did this simulation I made drastic changes to see what it would result in, so this time I felt small incremental changes would be better.

Looking at the results, it appears that year two was the most successful with the minor changes I made from year one. In year two I lowered the interest rate to 2.5%, increased the corporate tax to 33%, and increased government expenditure to 31. This increased my Real GDP to 4.4, decreased my unemployment to 4.8, and reduced my inflation to 1.5. I also had an approval rating of 100%. The only negative outcome from these changes was that I had a budget deficit of negative 1.1. I tried to make minimal changes in the remaining years after year 2 but ended up with high unemployment and extreme fluctuations in inflation most years.

By year seven, I tried to level out the rates which proved somewhat successful because my Real GDP increased to 4.5 and I had a budget surplus of 2.6. However, I had a negative inflation rate which the simulation indicated could cause the economy to go into a downward spiral as consumers delay purchases waiting for prices to fall furth and my approval rating declined to 65.

Sean McGuire - For this simulation I decided to go with the rollercoaster scenario. I thought it was interesting to retry this situation but with higher volatility in the market. It was defiantly a challenge trying to keep growth consistent with the world market being volatile. I felt that I needed to be more strategic with this time compared to the last time that we did this simulation. When making policy decisions I would take into account the forecast for growth. If growth was forecasted to be low I would lower interest rates to try and counterbalance the slowing economy. I also wanted to lower income tax through the entire 7 years, but instead of making drastic changes I did it slowly over the corse of the 7 years. 

A closed economy is an economy that does not interact with other economies in the world. An open economy is one that interacts freely with other economies around the world. With a closed economy you only have to focus on your internal economy when making polices. With the one dimensional economy it is easier to make polices since there is only one economy to focus on. With open an open economy things become a bit more complicated. You have to work with other countries in order to create policies that are around exports, imports, trade balance and exchange rates. With that, other economies can have an effect on your economy as well. When conducting trade policy makers also have to look at trade surplus and trade deficit. 

Consumer confidence is used as a market indicator. It is a way to measure how confident consumers are about the overall state of the economy. The decisions made by consumers is impacted by their confidence in the economy. Consumer confidence tends to increase when the economy is growing. This can effect polices because using this an indicator will help policy makers with an idea of where the economy is headed. if confidence in the economy is low, the government may lowers rates to help stimulate the economy and get it expanding again. Having this form of measurement can really be helpful for those trying to make decisions to better the economy.