Fiscal Policy Simulation

Fiscal Policy Simulation

Ronon Dex

University of Phoenix

ECO 372

Dr. Judith Grenkowicz

January 15, 2011

Abstract

Fiscal Policy is defined as the deliberate change in either government spending or taxes to stimulate or slow down the economy (Colander, 2008). This paper will address and analyze the varying methodologies of fiscal decision making as it applies to the simulation as well as in the author’s personal business. The impact of the choices made within the simulation show varying effects on the economy, whether they are positive or negative. Four key points that were emphasized in the readings were the multiplier method, unemployment percentage, inflation rate, and the potential output of a given economy. Having a sound understanding of the economic indicators and how changes in one affects another is important when determining the appropriate fiscal policy to implement.

Fiscal Policy Simulation

Government officials play a pivotal role when it comes to the initiation and continuation of economic growth in a country. Aside from creating and reinforcing government laws, regulations, and policies in regards to the economy, the government has the ability to encourage and bolster an economic system to inspire true growth. Some of the methodologies that they can use are the varying forms of fiscal policy. Colander defines fiscal policy as the deliberate change in either government spending or taxes to stimulate or slow down the economy (Colander, 2008). These decision making practices form the principle of base of what power the government has to affect change, whether positive or negative. Having a sound understanding of the economic indicators and how changes in one affects another is important when determining the appropriate fiscal policy to implement. The challenge therefore is to establish and maintain a thriving economy while controlling specific indicators such as inflation and unemployment. Governments around the world face these dilemmas...