MACROECONOMIC VARIABLE IN ECONLAND SIMULATION 2

Macroeconomic Variable in Econland Simulation

Student’s Name

Institutional Affiliation

Instructor’s Name

Course

Date

Macroeconomic Variable in Econland Simulation

Simulation experience

The decision-making process in the simulation proved very challenging. In the first year, the policy decisions seemed to pay off handsomely with low-interest rates, real GDP high, and inflation rate average. The approval rating was sky-high at more than 80%. However, the subsequent years proved very challenging. The policy decision to reduce interest rates seemed to increase inflation but also contributed to a lower unemployment rate. However, government spending seemed to create a sharp rise in the budget deficit.

These decisions seemed to repeat from the second year to the seventh year, with approval ratings dropping to 57%. The decision to raise government spending seemed easy but had the unwanted effect of increasing inflation and budget deficit. By year seven, the approval rating had declined to 57%, although the real GDP growth remained average while the unemployment rate fell and inflation remained low. Ultimately, I learned the challenges government policymakers go through in attempting to strike a healthy balance across all macroeconomic variables of interest rate, inflation rate, unemployment rate, and government debt while making the citizenry happy.

The significance of global economic outlook

The simulation provides global economic metrics because Econland operates in an open economy instead of a closed economy. An open economy interacts with the rest of the global economy and is bound to be affected by the general world macroeconomic variables such as interest rates and world economic growth (Mankiw, 2020). Since Econland is a very small economy, it cannot affect the global economy but is affected by global capital flows, exports, and imports. This means that whichever decision the government makes, it must consider the global trends in macroeconomic variables (Mankiw, 2020). This scenario contrasts with a closed economy where a country does not interact with the international community. Such closed economies have no exports, imports, or capital flow, rendering them unresponsive to outside economic conditions.

Consumer sentiments in policy decisions

Consumer sentiments are integral to economic performance. When consumer sentiments are positive, or the rating is high, the aggregate demand in the economy is likely to shift to the right denoting greater expansion (Mankiw, 2020). Such positive sentiments directly influence consumer spending and, by extension, the country’s real GDP. On the other hand, negative consumer sentiments mean that consumers will be more cautious with their savings and are likely to hold onto their money rather than spend it for fear of disruption or loss of their incomes and livelihoods (Mankiw, 2020). For example, the outbreak of Covid-19 in December 2019 was followed by negative sentiments about the global economy (Ember, 2021). Until the discovery of vaccines, the global economy performed dismally because consumer sentiments were negative, and the aggregate demand sharply dropped.

References

Ember, S. (2021). The Boredom economy. The New York Times. https://www.nytimes.com/2021/02/20/business/gamestop-investing-economy.html

Mankiw, N. G. (2020). Principles of economics. Cengage Learning.

The post MACROECONOMIC VARIABLE IN ECONLAND SIMULATION 2 Macroeconomic Variable in Econland Simulation Student’s appeared first on PapersSpot.