ECO 202 Simulation Checkpoint Assignment

Economic Summary Report

Mamadou Doumbia

Table of Contents

ECO 202 Simulation Checkpoint Assignment Economic Summary Report............................................1

Table of Contents.......................................................................................................................1
Introduction................................................................................................................................2
Fiscal Policy: Government Expenditure.....................................................................................3
Monetary Policies.......................................................................................................................4
References.................................................................................................................................6

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 Introduction

For the benefit of the incoming administration, I submit this report to document, analyze,

and interpret the macroeconomic policy decisions I made as the chief economic policy advisor of

Econland. This document aims 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 account of the major 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 3: Economic Environment, Decisions, and Results

This table summarizes the Decisions and Results of your game.

Table 1

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 The table above summarizes the macroeconomic climate of Econland over my term. You

are the chief economic policy advisor; you have managed to lead Econland through a harsh

global financial crisis and have still managed to keep the budget remarkably stable, and at the

end of the 7th year you will have a 0.5% surplus. Although your aggressive government

expenditure (increasing to 38B) cushioned the economy during the recession period, the move to

maintain Interest and Tax rates constant throughout the simulation was perhaps one of the causes

of the Year 6-7 stagnation where unemployment reached 6.5% and growth plummeted. The 83-

85% approval rating that you have is an indication of a population that was not seen as being

directly affected by the global crash but now is angry about the slow pace of recovery and

increasing unemployment.

Fiscal Policy: Government Expenditure

In relation to your government spending, I was simply applying a counter-cyclical

strategy: I raised spending by $31B to $38B when global growth dropped to 1.0 per cent to

counter declining exports and keep aggregate demand unchanged. It was meant to bring fiscal

stimulus as a buffer so that the Econland could not fall victim to the international financial crisis

so that the domestic circulation could not be affected even when the emerging markets were

falling. After the global perspective rose to 2.0% in the Year 7, I made a deliberate decision to

reduce the expenditure to 35B to focus on long-term fiscal sustainability and place the budget on

a surplus.

Considering these judgments, results were very favorable with regard to budgetary health

and ambivalent in the context of labor market. My policies have effectively prevented a deep

depression at the crisis years and resulted in a very rare budget surplus of 0.5 at Year 7, and

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inflation has been remarkably steady at 0.4. But the switch to reduced expenditure, coupled with

a constant rate of 30% corporate tax, produced an unfavorable employment movement, and the

level of unemployment went to 6.5%. Although the economy is fiscally "fit" and stable, the

failure to support the spending cuts with the simultaneous tax relief or monetary easing did not

allow a stronger recovery in the hiring in the private sector.

Monetary Policies

Figure 1

During the simulation, I held a constant interest rate at 3.0 and I adopted a policy of

neutrality in spite of the changing conditions in the international arena. This was done to serve as

a nominal anchor to the economy so that businesses and households could make their long term

plans without worrying about abrupt alterations in the cost of borrowing. Having maintained the

rate at 3.0% when the world growth was at a high of 2.8% in Year 2 meant I was not over-

tightening the money supply hence the economy was in its own growth without the need to

control the money supply further, hence making Real GDP growth to reach high mark of 4.1%.

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 Nevertheless, this fixed interest rate directly and diversely influenced the inflation and

this depicts the lagginess between the price stability and monetary policy. To illustrate this,

during Year 3, when I raised the amount of money spent by the government to $34 billion and

maintained the interest rates at 3.0, inflation shot to 3.0. This was due to the fact that the situation

of cheap money with the high level of government expenditure propelled the aggregate demand

at a higher rate than the economy was able to generate goods. On the other hand, after Year 7,

the interest rate of 3.0% turned out to be contractionary in real terms as I reduced government

expenditure; consequently, the inflation dropped to 0.4%. This particular example demonstrates

that the 3.0 rate was simulative during the initial years but ultimately it led to an environment of

disinflationary rates that almost brought the price increase to a crawl.

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 References

Mankiw, N. G. (2024). Principles of economics (10th ed.). Cengage Learning.

Blanchard, O. (2021). Macroeconomics (8th ed.). Pearson.