Evaluating Fiscal Policy Alternatives
Fiscal policy is a tool that a government uses on the aggregate demand side of the economy to deal with recessions, inflation, and unemployment. (Colander chptr.25) With the Government getting it’s hands in an economy it can be helpful and disastrous. It is some what like taking chemotherapy to get rid of cancer, you are going to get sicker before you get better, and then you could get into real trouble if you take too much. This is what it is like having the government into the economy. Politicians are pretty arrogant folks when let loose in the real world. They have a tendency not to consult economist or money people about there decisions.
In the simulation the government was facing a high unemployment rater and very little infrastructure to be able to move goods and produce goods. With all the resources in the world if you can not get it to market place it does you no good. With unemployment up your people are unhappy and ripe to through you out of office. This should not be your first worry though you should be concerned that you people are not living up to their best abilities. If you raise the spending on infrastructure, as done in the simulation you produce several reactions in the economy and social realms. For every action there is an opposite and equal reaction. This statement is from Newton in the world of physics, however it also applies here. By raising the spending you lower your unemployment which is great, however inflation goes up, but so does you approval rating. Also raising taxes does not hurt so bad if more folks are working. People do not like taxes, yet if they see people working and roads being built then it is not so bad. In the simulation 200 million was spent on infrastructure and taxes were raised .50% all in all this worked well for a while. Then as in every government project inflation began to rise. More tweaking had to continue the rest of the simulation.(...