YEAR 0-1

Knowing the latest information, we can begin to carry out policies in order to reach the wished
economic growth. Because of this, I started by keeping everything the same to see how the
economy would react if no policy would be made. As a result, real GDP growth decreased from
2.5% to 1%. While unemployment rate increased by 0.6% reaching a value of 5.6%. Also,
inflation rate remained the same while government deficit went from -3 to -2.1. From this you
can conclude that GDP growth is slow which can finally lead to a higher unemployment rate and
lower consumption confidence. From the report it can be seen which component from the GDP
is not growing quickly enough, in this case are Investment and Exports. This is the reason why
real GDP growth has decreased in year 1. As I kept government expenditure constant, this can
lead to a reduction in it, if inflation is positive (inflation rate in this year remained the same,
2%).

Surprisingly, approval rating went down. Something which clearly confounded me due to the
fact that I thought that, although real GDP growth and unemployment rate were on average, as
inflation rate was low, approval rating would not decrease.

I wanted to know how to make GDP growth high, unemployment rate, inflation rate and budget
deficit low.

YEAR 2

I thought it was tempting to decrease the interest rate by 0.5% but I knew that that was
something which in the end was going to lead to a recession. So, I decided to decrease the
Income tax Rate by 2% just to see how it will react because I was not sure about changing a
variable that affects Consumption.

The result made me think about if the components I thought that were growing slow were they
actually acting in that way. I looked at the Consumption values and realized that it was also
slow growing because from year 0 to 1 it grew 4.1%. At first it seemed to me to be growing but
comparing it with the rest of the variables, it was clearly not growing.

This policy, made the economy do well on all fronts and population satisfied. I was again
warned about keeping government expenditure constant and the consequences with inflation if
I didn’t change it.

YEAR 3

I was afraid of by changing government expenditure, GDP growth decreased and due to that an
economic decline. Because of that, I decreased the corporate tax rate which impacts
government revenues and the level of investment. Affirming my hypothesis, real GDP growth
declined and a decline in economic growth occurred. If this continued, it could lead to more
unemployment and less consumer confidence. Apart from that, I noticed that Investment was
still not growing quickly. Obviously, I was again warned about keeping government expenditure
constant and the consequences with inflation if I didn’t change it.

YEAR 4

To confirm my thought about unemployment, I decided to keep all variables the same.
Unemployment rate and GDP growth increased causing a slower economy which if staying the
same, equal consequences were going to happen. Warning about government expenditure
continued to appear.

YEAR 5

Because of that, I changed again the corporate tax rate by 1% without touching the government
expenditure. Honestly, it was surprising that GDP growth increased but unemployment rate
decreased just a little. Economy was growing but not too much. I was suggested to increase
government spending or reduce taxes due to the budget surplus. Although, I also wanted to
know what happened if I didn’t make any policy just because I didn’t know how to change
government expenditure without affecting inflation and GDP.

YEAR 6

Well, I thought that by not changing anything GDP growth was not going to be affected but I
was clearly wrong. It affected it and went down from 3.2% to 1.9%. The only thing I obtained
was a slower economy with the same problem of slow growing from GDP components.

Due to this, I thought that, if I was been that warned about government expenditure, I clearly
had to make some policy encouraging that component.

YEAR 7

For this year, I finally decided to increase government expenditure by a realistic amount. I knew
this was going to increase GDP growth but I was not sure about the reaction of the inflation
rate. In the end, this one resulted to increase by a little amount reaching a well economy and a
satisfied population. Also, the government was running a budget surplus which could lead to an
increase in government spending or a reduce in taxes for a continued grown economy.

It was difficult to me to just focus on the corporate tax and income tax rates. At first, I just
changed the interest rate and results made me learn that that policy was going to just end in a
recession.