Week 8 Macroeconomics Assignment

Table of Contents

To benefit the incoming administration, I submit this report to document, analyze, and interpret the macroeconomic policy decisions I made as to 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 significant 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, over my term, used macroeconomic policies to achieve almost full employment alongside a high sustainable economic growth through an improving GDP over time. The balance of payments is favorable, as seen from the simulation table indicating that our exports outshine our imports. Generally, I would rate my general performance as atop nine over ten perfectionists

Table 2.1

In the Econland economy, we have employed various taxation policies for different purposes. We have taxation policies to generate government revenue. It is these taxes that will finance the government to provide public goods to the citizens. We have also used taxation policies to bring about equity in our citizens’ wealth and income distribution. Over time; largely, our economy has been controlled by the demand and supply forces interplay. We have ensured minimal government interventions to ensure the free market ecosystems run smoothly. We have used models such as laissez-faire economics which advocate for minimal or no government supervision in economics. Our economy has embodied aspects of both capitalism and communism to ensure that the market corrects itself and that we reduce the exploitation of society by the wealthier and resource owners. Taxes have had the result of increasing the amount of government revenue available for spending.

An increased government spending has fueled consumption. More money was put into the pockets of the people of Econland hence spiking an increased consumption. Increased consumption means that the demand for goods goes up. Thus, prices go up similarly. To keep the prices manageable for every citizen, we had to reduce taxes and government sense to lower prices. Taxation also has enabled us to control the quality of goods moving into our country and has spiked competition alongside ensuring a high quality of goods in the market. Additionally, our taxation policies shad the effect of sponsoring increased investment as more money is made to the banks, and people had to borrow more and invests more given a high government spending

Figure 3.1

[]

Image credit: Figure 3 in “Building a Model of Aggregate Demand and Aggregate Supply by OpenStax College, CC BY 4.0

Figure 3.2

Our decisions were mainly affected by the interplay of aggregate demand and supply curves. Overall, we used government spending to control overall economic growth. Burkhead & Miner (2017) argues that government expenditure is vital in maintaining the macroeconomic aspects of an economy. The graph above is a typical representation of the behavior of supply and demand curves in our economy. Whenever the price in Econland rose above the equilibrium, we decreased government spending. It had the effect of reducing the amount of money in circulation; less is available to pen. This, in turn, has the effect of lowering prices. While for a deviation decreases, the equilibrium price prompted us to increase government spending, increasing money in circulation, and raise prices. We also used state expenditure to offset competition in the market amongst private agents and ends ended up raising the quality of goods produced

We also, over the years, have been employing various fiscal policies. They have played different roles in our economy. We used price level limitations or ceiling price limits to ensure that citizens are not exploited by exploitive businessmen in various situations, mainly in shortages. They have also played a key role in encouraging investments. This is by creating a conducive environment for business people; hence they are motivated to do business. This has been done by reduced taxes and incentives to set up companies to keep the economy flourishing. Policies have also played a key role in increasing income distribution among our people. This increases their purchasing power. We also have to employ an approach to boost various outputs in different sectors of our economy, for instance, the incentive to farmers by offering them subsidized fertilizers to increase production.

Just as other countries of the works do, our policies have yielded benefits in various ways. Expansionary policies such as tax cuts and increased government spending have a way of spurring economic growth through the increasing amount of money available for spending (Jayaraman & Narayan,2011). This increased spending creates a market for goods and services, shifting the demand curve to the right, showing a positive change. Contractionary policy may involve tax increased and decrease government spending. It withdraws more money from circulation, and hence less is available for spending. It might also be a way of raising money locally while reducing public debt, and the government may also issue bonds. Hence less money is left within the public. These policies have successfully succeeded in our economy-boosting our Gross Domestic Product.

Figure 4.1

Interest rates played a vital role in the management of Econland. We have been using the Central bank of Econland to control the interest rates. By various policies, we have had to hold interest rates by increasing or decreasing taxes depending on the current economic status. When we raise the borrowing rate of commercial banks from our central bank, the interest rate increase. The same is proportional to decreased rate of banks. High-interest rates discourage spending in most circumstances, while low-interest rates encourage consumption when people borrow more and spend more. The number of goods to be purchased or the purchasing power increases with decreased interest rates. Investments also have been inversely proportional to the interest rates. Interest rate, when increased and when decreased, can have effects on the overall GDP. Increased interest rates have the effect of discouraging foreign investment. Increased rates discourage exports but encourage imports.

The many macroeconomic policies that are valid in the US platform are as important they were years ago. These policies are equally working as they used to work years ago., the use of stock exchange, market to control interest rates, and even banks to control financing spur effects equal to which they used to reflect years before. They work perfectly to maintain the economy for both domestic and foreign investments.

Openness to trade allows capital accumulation in a country. It attracts foreigners who come and set up businesses in given a country hence boosting the economy of such a country. It leased to more effective access to commodities. It spurs competition among companies by keeping the prices at bay and making them affordable to almost all people in the economy. Openness to trade also makes it easy to transfer technology and production methods from one country to another. However, it has the disadvantage that comes with it. Its disadvantages are several. Openness to trade risks a country’s currency in that it becomes easy to manipulate it. The aforementioned is evident in the US, where the Chinese goods are cheaper than the home good is a risk to the integrity of the country’s goods. Openness to trade is a way of selling short-term gain for long-term problems. Trade-in natural resources sound like corruption other evils in society. It also makes it sit difficult for the local goods to penetrate the market due to international competition. There is also the possibility of smuggling harmful goods into the country, and this is unsuitable for the country, not to forget, killing the local markets (Future of Working,2021).

In conclusion, the various economic policies we employed in the economy worked perfectly, from fiscal policies to monetary. On a general grid, our models were propelled towards economic growth and development. We also focused on availing affordable prices for customers while ensuring quality goods in the markets. This was allowing the market to self-regulate with minimal government intervention needed. Our inflation rate has also been kept at minimal rates despite the gradual natural inflation rates. Policies on the supply side’s labor have ended, reducing unemployment by spurring an increased economy. We have also succeeded in keeping the BOP positive by ensuring that exports are higher than imports. This means we export more than we import. The overall effect was a benefit to the citizenry and files by employing many policies. The c

The consumer effect is a measure of how consumers perceive the general performance of the economy. It was a play factor in the economy of Econland. It’s an indicator of the economy’s performance. It is this factor that most influences their decisions. It is this consumer confidence that the businesses and companies use to plan the activities; hence a positive impact spurs positive economic growth. A negative indicator might delay projects, therefore, slowing down the economy (Yahoo finance,2021).

References

Dean, E., Elardo, J., Green, M., Wilson, B., & Berger, S. (2020). We are building a Model of Aggregate Demand and Aggregate Supply. Principles of Economics: Scarcity and Social Provisioning (2nd Ed.).