This analysis is based on computer simulations provided by Biz/ed’s virtual economy, an online model based on the one used by HM Treasury. The virtual economy enables experiments with economic policies and demonstrates impacts on several macro- and microeconomic factors.
In 2010, the British government announced the goal to reduce government spending for areas other than health and overseas aid by an average of nineteen per cent over four years thereby aiming to reduce Britain’s deficit and provoking sustained economic growth. To investigate the impacts of such a policy, the virtual economy model will be applied to demonstrate effects on the economy when government spending is reduced by ten per cent.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Decrease of Government Expenditure by ten per cent
- National Income
- Economic Growth
- Unemployment
- Inflation
- Government Borrowing and Debt
- Exchange Rate
- Additional Policies
- National Income
- Economic Growth
- Unemployment
- Inflation
- Government Borrowing and Government Debt
- Exchange Rate
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This analysis explores the impacts of a ten per cent reduction in government expenditure on several macroeconomic factors, using the virtual economy model developed by Biz/ed. The study aims to investigate how such a policy, similar to those implemented by the British government in 2010, affects national income, economic growth, unemployment, inflation, government borrowing, and the exchange rate.
- Impact of government spending cuts on national income and economic growth
- Relationship between government spending, unemployment, and inflation
- Effects of fiscal policies on government borrowing and debt
- Influence of exchange rates on economic performance
- Analysis of alternative fiscal policies and their implications
Zusammenfassung der Kapitel (Chapter Summaries)
The initial chapter introduces the Biz/ed virtual economy model and its use in analyzing the impact of government spending cuts. Chapter 2 examines the effects of reducing government expenditure by ten per cent on various macroeconomic indicators, including national income, economic growth, unemployment, inflation, government borrowing, and the exchange rate. The impact on national income and economic growth is discussed in relation to the IS-LM model and the multiplier effect. Chapter 3 explores the implications of additional policies, such as tax cuts, aimed at mitigating the negative effects of the initial government spending cuts. It examines the effects of this policy mix on national income, economic growth, unemployment, inflation, government borrowing, and the exchange rate.
Schlüsselwörter (Keywords)
The primary focus of this analysis is on the macroeconomic implications of government spending cuts and fiscal policy. Key concepts explored include national income, economic growth, unemployment, inflation, government borrowing, and the exchange rate. The analysis utilizes models such as the IS-LM model, Phillips Curve, and aggregate demand function to illustrate the relationship between these macroeconomic factors and the impact of government policies. The study also examines the role of automatic stabilizers and the implications of lags in policy implementation.
- Quote paper
- Anonymous,, 2012, Managing the Economy. Economical Effects of Reduced Government Spending, Munich, GRIN Verlag, https://www.grin.com/document/284887
