For the simulation assignment, I chose the rollercoaster scenario. My goal was to keep unemployment at its

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Question:

For the simulation assignment, I chose the rollercoaster scenario. My goal was to keep unemployment at its natural level and inflation at a steady rate. The element that had the biggest impact on GDP and unemployment seemed to be increasing government spending. However, my budget deficit was growing at a rapid pace. This, in turn, reduces 'national savings', which reduces the loanable funds and increases the cost of borrowing. The increase in the interest rate discourages capital investment in Econland.

This simulation provides us with a global economic outlook each year, for 7 years for us to be able to see the short-run effects of these policy changes related to the long run. According to our text, there is a trade-off (or negative correlation) between inflation and unemployment - in the short run. However, in the long run, unemployment will make its way back to its natural rate. Inflation may be manipulated by monetary policy, such as an increase in the amount of money in the economy, tax cuts, or reduced government spending pushing the short-run demand curve to the right. Increased demand can lower unemployment as more workers are needed to increase supply. But in the long run, prices and nominal incomes will adjust proportionately. The real variables of output and unemployment are not affected in the long run by monetary policy.

The 'consumer sentiment' is important when making successful policy decisions. If an investor feels that a certain policy will adversely affect the stability of the economy, they may choose to invest elsewhere. Or they may pull their investment out, as in 'capital flight' which can cause substantial negative consequences for an economy. Also, policy decisions made based on faulty information, such as believing restricting international trade will save jobs domestically, may cause people to support an action that could ultimately be detrimental to the economy.

Scenerio 2: The simulation was the rollercoaster. My experience helped me to use what I learned from reading to actually put it to use on the simulation to test my knowledge. I was easy to use. The policy decisions that worked best were to lower income taxes, keep government spending at 20 to 25 billion, and lower interest rates to influence consumer spending to prevent a government deficit but it caused inflation.

On a year to year basis it showed growth and also where the economy fell to correct and make decisions on the next year. An open economy makes policies that affects other economies that trade currencies with another country such as taxes on imports and exports. A closed economy makes policies to effect their own economy such as prices for the public to use for its resources.

Consumer sentiment focuses on how well the economy is doing the lower the more work the economy needs to do to raise it. The ideal consumer sentiment index is 100, which is that the country is headed to a successful economic future. It's important to see inflation and tax rates to make changes to keep the public happy.

Based on the two scenerio above compare and contrast your simulation experience and analysis. Refer to the textbook to support your decisions and your claims related to open economies and consumer confidence.