Closed economy versus open economy.

Because I wanted to see how short-term adjustments in fiscal policy would impact the economy, this week I did a short term simulation for a two-year time period. The rollercoaster simulation was also an option because it offered a new and exciting experience. The most important lesson from the exercise was that drastic changes should be avoided in order to achieve consistent results. You should instead study how small changes can have an impact on the desired outcome. In order to boost the Gross Domestic Product (GDP), I needed to gradually reduce interest rates. To increase client trust, I would also reduce the income tax by small increments. My most successful initiatives were to control corporate taxes and stimulate job creation and investment. I also changed interest rates to increase spending, rather than decrease savings. Since it shows what is going on in other countries, each year the simulation offers a world-wide economic perspective. Imports and exports are unrestricted in an open economy, since there are no trade restrictions with other nations (Uribe and Schmitt-Groh√©, 2017). A free economy benefits local companies by sustaining their output. This opens up opportunities for investors and increases the tax revenue received by government to pay income taxes. An open economy can result in unfair and unjust competition among domestic companies, especially when imported goods are cheaper due to economies of scale. Closed economies, however, hinder international trade and favor local commerce (Razin & Yuen 2002). The benefit of this method is that it emphasizes the creation of stable markets for local goods. This is especially true when large amounts of the economy depend on one domestically produced or farmed product. This strategy reduces the competition between domestic and imported goods. It also boosts domestic manufactures. However, this strategy comes with a major drawback. It reduces the production capacity of local producers, who can’t export their surplus goods. This increases the rate of unemployment. Economists, investors, governments, and economists rely on consumer trust to make their decisions. The government gets a higher approval rating when there is high consumer confidence. This happens because people have faith in government’s ability to grow the economy, increase spending on infrastructure and health and safety, as well as other areas. The confidence it gives to economists, or the people in charge of the economy, allows them to make bold choices and not fear public reactions. They are therefore able to take greater risks during times of low customer trust. Investors and firms can also expect an increase in spending when consumers have high levels of confidence. They believe they will receive future revenues in today’s economic climate. A low level of consumer confidence can lead to low levels in people’s trust in the economy. This will result in lower total spending and higher savings. My tenure saw me prioritizing consumer confidence. This resulted not only in increased spending but also decreased savings and an increase in GDP due to rising demand. My grade was very high as a result.

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