Please answer both questions using the ECONLAND stimulation

7) What government expenditure decisions did you make during different phases of the simulation? How do changes in government spending affect the consumption level?

8) How did the economy of Econland perform during the game? Which economic outcomes were particularly difficult to impact? Was there useful feedback from the policy advisor or the analysis of the Reports page? Explain why it was / was not useful.

Your role: You are responsible for managing the economy of Econland, a medium-sized country, for a period of seven years. You must make monetary and fiscal policy decisions that make Econland's population happyboth by maximizing real GDP growth and by keeping the unemployment rate and budget decit as low as possible. Inflation also needs to be low, but remain positivedeflation is destabilizing to an economy. Along the way, you will be tasked with analyzing economic growth forecasts and will receive yearly updates from your policy advisors. Your yearly decisions: How you will be measured: 0 Interest rate 0 GDP growth 0 Income tax rate 0 Unemployment rate 0 Corporate tax rate 0 Inflation rate 0 Government spending 0 Budget surplus (or deficit) Yourgoak You will receive approval points from your citizens each year (0-100 points). Your goal is to finish year seven with the highest possible approval rating. Choose a Scenario There are three scenarios you can choose from. Each scenario has different values for the level and volatility of world economic growth. Beginning players are advised to start with the Base Case scenario. More experienced players may try the Rollercoaster scenario (with big ups and downs in world economic growth) or the Stagnation scenario (with stable but low world economic growth). Base Case Rollercoaster Stagnation Medium High Low Economic Growth & Volatility Economic Growth & Volatility Economic Growth & Volatility Year 1 Economic Forecast Last year Econland's GDP was US$100 billion, making the economy roughly the size of Puerto Rico or Hungary. Econland is affected by global economic conditions, but it is too small to impact the global economy in return. Exports and imports both account for 25% of GDP. Last year, the world economy did well and Econland experienced solid economic growth (2.4%). Unemployment is low (5%), and inflation (at 2%) and the budget decit (2.8% of GDP) are under control. Total government debt is 60% of GDP. The outlook for next year is moderately positive, with the International Monetary Fund (IMF) predicting world economic growth of 2.4%. The Consumer Confidence Index is at its long-term average of 100. Forecast World Economic Growth % 2.4 Econland Consumer Confidence Index 0 100 Decisions Interest Rate 0 : 3.0% 0% 7% Last year's interest rate: 3% Income Tax Rate 0 24% 0% 50% Last year's income tax rate: 24% Corporate Tax Rate 0 0% 50% Last year's corporate tax rate: 30% Government Expenditure (billions) 0 $30 Expenditure should be between 0-1000 billion Last year's government expenditure (billions): $30 Year 2 Economic Forecast Following elections in several of the world's largest countries and continuing rapid growth in emerging markets, the outlook for the world economy is increasingly positive. Confidence among investors is increasing. As a result, world economic growth is expected to accelerate to 2.8%. Forecast World Economic Growth % 2.8 Econland Consumer Confidence Index 0 102 Decisions Interest Rate 0 : 0% 7% Last year's interest rate: 3% Income Tax Rate 0 : 0% 50% Last year's income tax rate: 24% Corporate Tax Rate 0 : 0% 50% Last year's corporate tax rate: 30% Government Expenditure (billions) O Expenditure should be between 0-1000 billion Last year's government expenditure (billions): $22 Submit Decisions for Year 2 3.0% 24% 30% $22 Year 4 Economic Forecast The world economy is slowing down further as the governments in the world's largest countries fail to boost growth and reduce unemployment in a signicant way. Emerging markets are also slowing down as commodity prices have dropped, and several overheated real estate markets have started to suffer. As result of these different headwinds, world economic growth is expected to slow down to 1.6% next year. Forecast World Economic Growth % 1.6 Econland Consumer Confidence index 0 107 Decisions Interest Rate 0 : 3_% 0% 7% Last year's interest rate: 3% Income Tax Rate 0 0% 50% Last year's income tax rate: 24% Corporate Tax Rate 0 :> 30% 0% 50% Last year's corporate tax rate: 30% Government Expenditure (billions) 0 $411 Expenditure should be between 0-1000 billion Last year's government expenditure (billions): $29 Submit Decisions for Year 4 Year 5 Economic Forecast Now there is real trouble. A major financial crisis in emerging markets in Asia and Latin America has spilled over to other parts of the world and has pushed several major countries in recession. Developed countries are feeling the impact, and world economic growth is expected to be only 1.0% next year. Forecast World Economic Growth % 1.0 Econland Consumer Confidence Index 0 96 Deci si 0 n 5 Interest Rate 9 :> 3.0% 0% 7% Last year's interest rate: 3% Income Tax Rate 0 0% 50% Last year's income tax rate: 24% Corporate Tax Rate 0 : 30% 0% 50% Last year's corporate tax rate: 30% Government Expenditure (billions) 0 $40 Expenditure should be between 0-1000 billion Last year's government expenditure (billions): $40 Submit Decisions for Year 5 Year 6 Economic Forecast Several corrupt government and business leaders have been given lengthyjail sentences. Meanwhile, the IMF has agreed on a stabilization package with countries that were in crisis that has helped to stop the panic and to stabilize the situation. Other countries have provided scal and monetary stimulus to their economies. Confidence in the world economy is beginning to return, but risks to economic stability remain. World economic growth is predicted to pick up slightly to reach 1.3% next year. Forecast World Economic Growth % 1.3 Econland Consumer Condence Index 0 103 Decisions Interest Rate 0 : 0% 7% Last year's interest rate: 3% Income Tax Rate 0 : 0% 50% Last year's income tax rate: 24% Corporate Tax Rate 8 : 0% 50% Last year's corporate tax rate: 30% Government Expenditure (billions) 0 3.0% 24% 30% $32 Expenditure should be between 0-1000 billion Last year's government expenditure (billions): $32 Submit Decisions for Year 6 Year 7 Economic Forecast It looks like the world economy has turned a corner, with many parts of the world growing again at a healthy pace. Stability has returned to several major advanced economies in Asia and Europe; China and India are growing quickly again, and this is benefiting other economies in Asia. The latest forecast for world economic growth is now 2.0%. Forecast World Economic Growth % 2.0 Econland Consumer Confidence Index 0 97 Decisions Interest Rate 0 , 0% 7% Last year's interest rate: 3% Income Tax Rate 0 : 0% 50% Last yea r's income tax rate: 24% Corporate Tax Rate 0 :> 0% 50% Last yea r's corporate tax rate: 30% Government Expenditure (billions) 0 3.0% 24% 30% 39 Expenditure should be between 0-1000 billion Last year's government expenditure (billions): $36 Year 7 Results Table 1: Real GDP and Its Components 0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Consumption 55.0 52.7 60.3 55.1 61.4 69.5 73.9 76.2 Government Expenditure 30.0 22.0 26.0 29.0 40.0 32.0 36.0 39.0 Investment 15.0 15.2 16.1 14.7 16.9 16.0 16.9 16.3 Exports 25.0 25.6 26.1 26.8 27.1 27.4 28.2 29.2 Imports 25.0 24.0 27.6 25.1 28.2 31.7 33.2 33.7 Nominal GDP 100.0 91.5 100.9 100.6 117.3 113.1 121.8 127.0 Real GDP 100.0 89.8 105.3 101.3 110.6 104.4 111.2 116.4 3 Copy Table 1 to clipboard Copy Table 1 to clipboard Table 2: Other Macroeconomic Data Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Capital Stock US$ (in billions) 100.0 105.2 110.8 114.4 119.9 123.9 128.4 131.9 Productivity Growth % 0.0 3.6 3.7 2.3 3.4 2.3 2.6 1.9 Consumer Price Index 100.0 102.0 95.8 99.3 106.1 108.4 109.5 109.1 Exchange Rate Index 100.0 100.0 100.7 100.1 100.8 100.4 98.9 97.3 Trade Balance US$ (in billions) 0.0 1.6 -1.5 1.7 -1.1 -4.3 -5.0 -4.5 Income Tax Revenue US$ (in billions) 24.0 22.0 24.2 24.1 28.1 27.2 29.2 30.5 Corporate Tax Revenue US$ (in billions) 3.0 2.7 3.0 3.0 3.5 3.4 3.7 3.8 Government Budget Surplus (Deficit) US$ (in billions) -3.0 2.7 1.2 -1.8 -8.3 -1.5 -3.1 -4.7 Government Debt US$ (in billions) 60.0 57.3 56.0 57.9 66.2 67.7 70.8 75.5 Government Debt as % of GDP 60.0 62.6 55.6 57.5 56.5 59.8 58.1 59.4 Copy Table 2 to clipboard Table 3 . F ResulCopy Table 2 to clipboard Table 3: Economic Environment, Decisions, and Results Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Global Economic Growth Forecast 2.4 2.4 2.8 2.0 1.6 1.0 1.3 2.0 Consumer Confidence Index 100.0 100.0 102.3 94.9 106.7 96.1 102.5 97.2 Interest Rate % 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Income Tax Rate % 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 Corporate Tax Rate % 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Government Expenditure US$ (in billions) 30.0 22.0 26.0 29.0 40.0 32.0 36.0 39.0 Real GDP Growth % 2.5 -10.2 17.3 -3.7 9.1 -5.6 6.5 4.7 Unemployment Rate % 5.0 10.1 4.2 2.0 4.9 5.6 6.6 2.5 Inflation Rate % 2.0 2.0 -6.2 3.4 6.8 2.3 1.1 -0.4 Budget Surplus (Deficit) as % of GDP -3.0 3.0 1.2 -1.8 -7.1 -1.3 -2.6 -3.7 Copy Table 3 to clipboard