Principles of Macroeconomics
Evaluating Fiscal Policy Alternatives simulation
Fiscal policy is whenever the government changes government spending or taxation as a means of influencing the market economy. This change takes place to stimulate or to restrain inflation. Fiscal policy is the manipulation of trends in the economy by the government. The content of this paper will discuss the effects of the changes in fiscal policy based on the evaluating fiscal policy alternatives simulation. Well Ruled
The first part of the simulation for the year 2xx6 showed the decision made was “well ruled”. The fiscal policy decision made this year will have an impact on the real income and real gross domestic product of the economy in the future. The policies will lead to an increase in real gross domestic product. This will lead to an increase in real income and a decrease in unemployment. The change in government expenditure and / or taxation shows the economy will overshoot the potential output for the future. This will also cause higher inflation than the current level. The simulation showed increasing government expenditure on infrastructure projects is better than investing in education. A crucial need for this country is developing infrastructure to connect different parts of this country. Infrastructure projects will generate employment suitable to the skills the labor has. Erehwon is skewed toward unskilled labor and labor skilled in construction, engineering, and design. Education will not generate enough employment for the people who are unemployed in the economy. This is because of the shortage of trained faculty in Erehwon. Reducing taxes will increase popularity as a President more than increasing government expenditure will. The downside to this is fulfilling the economy’s crucial development needs will not happen unless there is an increase in government expenditure....