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An Economic Simulation: Econoland
Q7. What government expenditure decisions did you make during different phases of the simulation? How do changes in government spending affect the consumption level?
During the first and second years of the simulation, I kept corporate and individual income tax rates too high to sustain economic growth, and also kept the interest rate too high at 3% and then raised it to 7%, which discouraged borrowing for new investments. When the world economy slowed down, this further discouraged consumption. Lowering the interest rate by the third year was helpful, even with raising income and corporate taxes. Reinvesting the gains from such taxes into government infrastructure can be very helpful to further encourage spending by consumers and businesses. By the fourth year, despite the instability in the world economy, the lack of a budget surplus, government reinvestment in the economy, and keeping the interest rate stable resulted in continued growth.
But by the fifth year, by keeping government spending constant in a world where inflation is a significant factor, combined with a budget surplus, growth had slowed. This should have been a sign for a need for higher levels of government spending. Inflation means that...…requirements, or the amount of money banks must keep on reserve to avoid bank runs, can also be helpful. This ensures that banks can lend more money, and have more money circulating in the economy. The central bank can also lower the discount rate, or the rate banks charge to lend money to one another to meet reserve requirements and for other reasons, to ensure that consumers and businesses who want to borrow and spend money for various goods and services have the means to do so. Finally, the government can buy up treasury notes, further infusing liquid cash into the economy,…
Monetary Policy In the United States, the Federal Reserve system is charged with implementing monetary policy (Investopedia, 2013). Monetary policy is essentially any the output of any central bank that seeks to manage an economy by means of manipulating the supply of money in the economy (Investopedia, 2013). The Federal Reserve (2013) defines monetary policy as what it does to "influence the amount of money and credit in the U.S. economy."
Monetary Policy Every economic activity in the United States is related to the policies that are decided by the monetary policies of the nation that are formulated. This involves all activities like purchase of houses, starting up of new business enterprises, and expansion of businesses, investments in new plants or machinery. It also affects our investment decisions like putting our investments in banks, bonds, or the stock market. It is also
" (ECB, 2007) Operational efficiency is held to be the most important of all the principles of operation for the ECB and can be defined as "the capacity of the operational framework to enable monetary policy decision to feed through as precisely and as fast as possible to short-term money market rates. These in turn, through the monetary policy transmission mechanism, affect the price level." (ECB, 2007) Equal treatment and harmonization
Monetary Policy Any change in the central back policy or the bank reserves, which is made to influence the interest rates and thus the investment, employment or production, is called the monetary policy. If the monetary authority wants to increase production, they need to increase the bank reserves. The bank then expands the money supply, which in turn reduces the interest rates. Monetary policy is one of the tools that a
Monetary policy is crucial to the economy and impacts all types of economic and financial decisions individuals make. For example, depending on the state of the economy, individuals may decide whether to obtain a loan to purchase a new car or house or to start their own company, whether to expand a business by investing in a new plant or equipment, and whether to put savings in a bank, in
Monetary Policy and Mortgages The businesses of mortgages lead to their own problems. Recently it was stated by the attorney for the Western District of Missouri that the owner of a mortgage invest company and three employees of Ameriquest Mortgage were charged with an indictment. The effort made by them was to cheat Ameriquest and some investors through the process of false loans for mortgage. Brent Michael Barber who is 40