In your responses, comment to your peers, and compare and contrast your simulation experience and analysis. Refer to the textbook to support your decisions and your claims related to open economies and consumer confidence.

My post :

This simulation was fun to play. When combined with the readings from previous modules, the simulations appear to become easier to understand as you gain more information about economic fundamentals. My strategy was to maintain the economy as stable as possible. By doing so, I was able to retain a rather good approval rating throughout seven years. However, I ended up with average read GDP growth across the entire seven-year period. I kept my inflation rate low, and happily, my unemployment rate remained stable rather than exploding.

An open economy is defined as "an economy that freely interacts with other economies around the world" (Mankiw, 2021). Open economies include the United States, the United Kingdom, and Canada. Closed economies, on the other hand, are those "that do not interact with other economies in the world" (Mankiw, 2021), with closed economies including North Korea and Morocco. Government-enacted trade policies "directly influence the number of goods and services that a country imports and exports" (Mankiw, 2021). Trade policy can take many forms, including taxes, tariffs, import quotas, and so on. When open economies apply various tax policies, it has a direct impact on supply and demand inside the country. In open economies, a deficit directly raises interest rates, causing a crowding-out effect on investment. Because of the crowding-out effect, investors are looking for investment opportunities in overseas markets. Imports and exports are severely restricted, if authorized at all, in closed economies. This raises government spending and, as a result, the government deficit.

Consumer sentiment is defined as "a statistical measure of the overall health of the economy based on consumer opinion." It considers people's sentiments about their current financial situation, the short-term health of the economy, and the prospects for longer-term economic growth" (Liberto, 2021). Justin Kuepper's article "Consumer Confidence and Its Impact on the Markets" explores the importance of consumer spending and its impact on GDP. Economists developed the Consumer Confidence Index (CCI) to aid in forecasting future consumer purchasing trends. These consumer confidence surveys are important to economists and investors all across the world since they are "great leading indicators for the overall economy" (Kuepper, 2021).

Reference:

Kuepper, J. (2021, February 22). Consumer confidence and its impact on the markets.Retrieved April 14, 2021, from https://www.thebalance.com/consumer-confidence-and-its-impact-on-the-markets-1978947

Liberto, D. (2021, April 14). Consumer sentiment definition. Retrieved April 14, 2021, from https://www.investopedia.com/terms/c/consumer-sentiment.asp

Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning.

Peers post:

I played the simulation in the rollercoaster scenario and noticed that with every policy change made, the results were drastic in ups and downs. I tried to make small changes like little increases to government spending and this caused in my opinion significant variations to the overall economic growth. I changed to the stagnation scenario and saw more of a consistent shift in variables. I made small changes to keep by overall approval rating over 80% and the economic growth forecast as close to 2.4% as possible. I used the strategy of keeping the interest rate low, between 2-2.5% with small increases in the government spending, between 30-39 billion. I also saw overall rating improve with small changes to income and corporate taxes.

The simulation provides a global economic outlook for each year to show us how each category has been affected by the policy changes that are being made. An open economy allows for the country to participate in international trading while a closed economy relies solely on their own resources. "International trade ensures that countries produce and export products and services efficiently at a lower cost and import other products and services that they cannot produce efficiently from a country that can" (Admin, 2012). This defines an open economy and with these opportunities, open economies have the potential to profit from comparative advantage. Countries specializing in a particular service or good that they can produce at lower opportunity costs and trade/import for other services and goods they don't specialize in. A closed economy would not be able to benefit from these opportunities.

"A consumer sentiment index is a measure of how consumers are feeling about the next few months" (Logue, 2022). For consumers, having confidence in the policy makers and their decisions will allow for less reservation in spending which in turn will help improve the economy. Policy makers use these economic indicators as measures for how consumers see them.

References

Admin. (2012, November 22). Difference Between Closed Economy and Open Economy. Compare the Difference Between Similar Terms. https://www.differencebetween.com/difference-between-closed-economy-and-vs-open-economy/

Logue, A. (2022). What Is a Consumer Sentiment Index? The Balance. https://www.thebalancemoney.com/what-is-a-consumer-sentiment-index-5214314#:~:text=Consumer%20sentiment%20is%20considered%20to%20be%20a%20leading,translate%20to%20things%20such%20as%20prices%20and%20employment.