Optimal Economic Model And Strategy Economics Essay

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This paper will analyze an optimum economic system theoretical account and discourse an applicable economic policy to be taken for the optimum economic system. In add-on, the paper will lucubrate on utility of macro-economic computing machine patterning for assorted intents.


In today ‘s universe, it is non excessively much to state that the economic system takes an of import function for human life in the society. Each person in the society participates in the economic system as a consumer and provides labor for the houses. And the economic growing such as GDP is normally used for a proxy step of well-being and quality of life, even though its value in mensurating well-being has been progressively questioned. [ 1 ]

Obviously, the authorities who run the economic system must be unfeignedly careful to put up the economic policy for taking a stable degree of economic growing. That is because the societal and economic public assistance in the society can be improved or devastated depending on its economic policy.

Part 1

Optimum Economic Model and Strategy

I strongly believe that the authorities needs to concentrate on the moderate long-run economic growing and lower unemployment rate in the economic system. In general, the chief economic marks of the authorities to be considered could be higher economic growing, lower unemployment, lower rising prices and external balance. [ 2 ] However, those chief mark above can non be achieved at the same clip because there are ‘trade-offs ‘ among the each of the economic marks. Therefore, the optimum economic system theoretical account from my point of position is as follows ;

Long-term & A ; Stable Economic Growth: It aims to put a solid bridgehead for the long-run and sustainable economic growing by increasing authorities ‘s outgo on public sector development such as instruction and substructure. In add-on, it besides aims to maintain unemployment rate low instead than high economic growing in a short term.

Efficient Tax System & A ; Strengthening the function of Middle Class in the Economy: It aims to actuate the in-between category to take part in the economic activities actively by cut downing the revenue enhancement rate. As a consequence, it aims to beef up their function in back uping the economic system in the society.

Economic Policy & A ; Rationale of the Strategy

Income Tax

Increasing basic-rate set from a‚¤ 29,900 to a‚¤31,000

Increasing personal allowance from a‚¤4,615 to a‚¤5,000

Increasing higher rate of income revenue enhancement from 40 % to 45 %

The scheme of income revenue enhancement aims to diminish overall income revenue enhancement and to stay the authorities gross as it was. In general, the lower income revenue enhancement will promote single and houses to work hard and increase person ‘s net income. As a consequence, it was expected that the aggregative demand and capacity of production would be increased and the overall economic system would turn consequently. However, sing that 26 % of the entire UK authorities ‘s gross in 2012 came from the income revenue enhancement, [ 3 ] lessening of the authorities ‘s gross due to cutting income revenue enhancement may ensue in cutting authorities outgo and it could countervail the economic impact of the revenue enhancement cut. [ 2 ] Therefore, in order to procure the sensible degree of the authorities ‘s gross, I have decided to increase higher revenue enhancement rate by 5 % .

Increasing higher rate of income revenue enhancement might deter the economic activities of the higher income group, but as both higher rate threshold and personal allowance were increased, it was expected that the negative impact of progressive revenue enhancement policy could be minimized to some extent.

Government Outgo

Increase outgo on wellness by 5 %

Increase outgo on instruction and employment by 5 %

This scheme on authorities outgo aims to set up the foundation of the long-run sustainable economic growing. Even though there are several drawbacks of the economic policy by authorities disbursement ( i.e. clip slowdown and less effectual multiplier consequence [ 4 ] ) , addition in authorities outgo can be one of the effectual ways to better the economic growing by increasing the aggregative demand. [ 2 ]

In peculiar, I have focused on the authorities ‘s capital outgo like investing in substructure. This is because the capital outgo has a permanent impact on the economic system in a long-run compared to current disbursement. [ 2 ] In add-on, it was decided to increase authorities outgo on virtue goods such as instruction and preparation system, which could lend to bettering the capacity of production in the economic system from a long-run prospective.

In this Virtual Economic theoretical account, nevertheless, there is no option to set a assorted type of authorities outgo ( i.e. current & A ; capital outgo, different sector ) , so it was expected this could act upon the simulation consequence postponing from my outlook.

Indirect Tax ( Duties & A ; VAT )

Increasing responsibility on baccy by 5P

Increasing responsibility on liquors by 20P

There are two principles of the scheme to increase indirect revenue enhancement. One is to increase authorities gross to counterbalance shortage of the gross due to revenue enhancement cut and increased disbursement. The other is to internalise the negative outwardnesss due to ingestion of baccy and intoxicant. Increase in indirect revenue enhancement can be one of the effectual ways to increase the authorities gross. [ 2 ] However, some might reason that the indirect revenue enhancement as a regressive revenue enhancement could hold the bigger influence on lower income group. Therefore, I have decided to impose the extra indirect revenue enhancements on limited points such as liquors and baccy, which can increase the societal cost on wellness attention.

Interest Rate

Increase the basal rate of involvement by 1 point

It aims to cut down the rising prices rate which was expected to be increased due to revenue enhancement cut and addition of authorities disbursement. Harmonizing to ‘quantity theory of money ‘ ( MV=PT ) , [ 2 ] sing comparatively changeless speed of money circulation ( V ) and figure of minutess taking topographic point ( T ) , the mean monetary value ( P ) is relative to the addition of money supply. Therefore, the supply of money as a pecuniary policy which can be controlled by involvement rate control is normally used for commanding the rising prices rate.

Social Security Benefit

Increase Child Benefit ( per Child ) to 12P

Increase Basic State Pension to 78P

It aims to back up the vulnerable members of society and to beef up the authorities function of the wealth distribution. After using all the alterations harmonizing to my optimum economic theoretical account, it was found that non all person in the society acquire the economic benefit. Therefore, I came up with another scheme to back up the people who less better off due to the proposed economic policy, which was increase societal security benefits such as child benefit and pension rate.

Consequences Analysis

National Income and Economic Growth

It was found that gross domestic merchandise and one-year rate of growing in GDP between 2003 and 2009 have fallen by 1345.55 million lb and 0.07 per cents on norm. The economic growing rate became higher in 2003, but subsequently it decreased and became lower than the rate before alterations. However, the growing rate after 2005 remained stable at around 2.35 % .

Analysis: Despite somewhat lower economic growing rate, the optimum economic theoretical account taking a long-run stable growing could be achieved sing stable rate of around 2.35 % . However, a short-run high economic growing rate in 2003 was non expected.

Initially I tried to put up the bridgehead for the long-run stable economic growing by increasing the authorities ‘s capital outgo and disbursement on merit goods. But there were no options to stipulate the authorities outgo with current outgo or capital outgo. Therefore, addition of the authorities disbursement seems to hold an influence on the short-run economic growing instead than the long-run economic growing.

Unemployment Rate and Inflation Rate

The overall unemployment kept lower compared to the value before alterations, which is consistent with the expected mark of the optimum economic system. And overall mean unemployment rate reached to 3.72 % which is 0.07 % lower than the value before alterations. On the other manus, RPI rising prices rate remained somewhat higher than the given mark of 2 % from 2003 to 2005, and so dropped to below 2 % .

Analysis: Despite somewhat higher rising prices rate in the short-run period, the mean rising prices rate reached to 2.04 % . In add-on, sing the moderate economic growing rate and lower unemployment as I have tried to accomplish, somewhat higher rising prices rate can be acceptable.

The ground of this consequence seems the clip hold of the impact of involvement rate alteration in the economic system. In add-on, if the authorities disbursement could be adjusted as ab initio planned for the moderate long-run economic growing, so the rising prices rate might hold remained moderate over the period consequently.

Government Debt & A ; Borrowing and Exchange Rate

It was found that the authorities debt became averagely 1.43 % higher than the value before alterations and remained about changeless at around 37.5 % of GDP. Consequently, the public sector cyberspace hard currency demand increased and remained changeless at around 1.5 % of GDP.

Analysis: I guess that addition of the authorities gross due to indirect revenue enhancement addition could non counterbalance the shortage due to increase of the authorities ‘s disbursement. However, sing the historical information of UK authorities, [ 5 ] the authorities debt of 37.5 % can be acceptable degree.

Lesson learned

To some extent, I could calculate the macroeconomic behavior depending on degree of demand and supply in the economic system influenced by the alteration of each economic factor such as revenue enhancement, authorities disbursement and involvement rate. Some simulation consequences turned out somewhat different from my initial purpose and it seems that clip dawdling consequence and deficient map of the theoretical account could be the grounds. But, the overall economic theoretical account responded decently to what I tried to accomplish.

However, it was hard to happen the sensible degree of those factors such as specific income revenue enhancement rates & A ; sets, degree of authorities disbursement and involvement rates. Analyzing the simulation consequence from the alteration of factors, I could make up one’s mind the certain degree of input with which the sensible result turned out. In add-on, I have found it hard to calculate long-run economic behavior. And the economic system behavior became changed otherwise in instance that the inputs were changed at the same time compared to the outlook sing the consequences due to alter of each input individually. It seems that the overall economic system could be influence by interaction of each input every bit good as different clip dawdling consequence of input.

The long tally belongingss of the theoretical account are derived from the supply side.

Contrary to physical jurisprudence ( i.e. changeless gravitation ) , the equations and value of variables used in the economic theoretical account could change depending on the different premise and theory. Contrary to the natural scientific disciplines, the societal scientific disciplines do non hold true invariants that can be used as scientific foundations.

Besides, postponing from scientific discipline physical premise and value of variable in equation in the theoretical account

After using all the alterations harmonizing to my optimum economic theoretical account, it was found that non all person in the society acquire the economic benefit. Therefore, I came up with another scheme to back up the people who less better off due to the proposed economic policy, which was increase societal security benefits such as child benefit and pension rate. However, macroeconomic impact of these alterations was non reflected in practical simulation. I guess that alteration in benefit will act upon on disbursement of societal security and authorities fiscal load every bit good as single ‘s net income. Consequently, it seems that the macro economic system might be influenced harmonizing to alteration of the aggregative demand due to this policy.

Part 2

Macroeconomic computing machine theoretical account

In general, a macroeconomic theoretical account is referred to as an analytical tool to exemplify and analyze the overall alteration in economic system based on the economic theory and pattern. Particularly, the phenomenal advancement in calculating power facilitates rapidly analyzing many complicated theoretical equations and interaction of variables. As a consequence, the modern macroeconomic theoretical accounts have been continuously developed thanks to the computing machine scientific discipline development. [ 4 ] Despite the failure to calculate the several historical economic crises such as the planetary fiscal crisis in 2008 and the Great Depression of the 1930s, the macroeconomic computing machine modeling is still widely used in the assorted countries.

Utility of Macroeconomic computing machine theoretical account

First, the simple macroeconomics computing machine theoretical accounts ( i.e. simple theoretical theoretical accounts ) are utile to understand the basic theoretical rules. It besides can be used to prove, comparison, and quantify different macroeconomic theories through the simulation consequences including the envisioned diagrams. Therefore, the simplified theoretical account could be helpful for pupils in academy every bit good as research workers in research institutes. For illustration, utilizing the Virtual Economy theoretical account, I could understand the basic macroeconomic theory and reaction between the economic variables and results. It was really utile to verify how macro economic system ( i.e. GDP growing, unemployment and rising prices ) would change depending on the alteration in the variables in the economic system. Particularly, envisioned figures and diagram helped to understand and analyze the economic behavior and alterations.

Second, the macroeconomic computing machine theoretical accounts enable us to bring forth the future economic prognosiss. Forecasting the future economic state of affairs is significantly of import for industries. Decision on their investing and future concern schemes could be made depending on the accurate prognosiss of national economic system every bit good as planetary economic system. Besides, it is one of the most important factors for international organisations and national authoritiess to put up their policy. The economic experts have been asked to supply accurate prognosiss of the future economic system and utilizing the macroeconomic computing machine patterning utilizing cardinal rules of economic theory, empirical economic behavior and stochastic methods. [ 5 ] Even though the planetary fiscal crisis in 2008 could non be forecasted even with the advanced modern theoretical account, the attempts to better truth of the theoretical accounts reflecting the existent economic system have been continued. [ 6 ] Therefore, it seems that the computing machine macroeconomic modeling will take an of import function for calculating the future economic system.

In add-on, the theoretical accounts can be utile analyse the economic impact of any technological, societal, environmental alterations. These analyses are frequently used for undertaking assessment. Harmonizing to [ 7 ] , the computing machine macroeconomic theoretical account utilizing a general equilibrium theoretical account of the U.S. economic system helps measuring the macroeconomic impact of LNG exports and back uping the statement of its positive impact in the economic system. In add-on, the economic impact analyses sometimes are used to counterbalance the worse off for environmental diaste rfor

Last, the macroeconomic computing machine theoretical accounts play a critical function for politicians to do a determination on their policy including the economic policy. [ 8 ] The quantitative economic impact of a certain policy can be forecasted and assessed by the theoretical accounts. Give the experience of utilizing the Virtual Economy theoretical account, I could verify the difference from different economic policy such as pecuniary policy, financial policy and my ain practical policy. The theoretical accounts can be used to compare non merely different economic policy but besides general policy by foretelling the economic impact of each different policy. The recent paper [ 1 ] revealed that the macroeconomic theoretical account has been used to foretell the economic impact of transit undertaking. The theoretical account used in the survey included big scale macroeconomic principals of investing and cost of labor, capital and transit as industry inputs. And the determination on transit policy execution was made based on the economic effects estimated by the macroeconomic theoretical account. [ 1 ]

Other Application of Computerized Modelling

In general, the computerized modeling is widely used for non merely economic system but besides power systems. By utilizing the computing machine modeling, the complex big graduated table power system can be visualized and the overall power flow can be analysed. The stableness of power system besides can be examined in normal operation and in instance of mistake status. In add-on, the computing machine theoretical account of power system enables us to analyze the system impact due to new power coevals. These utile maps help the applied scientists non merely to understand the power system theory but besides to do a sensible determination on system planning and operation.

The power system operators normally address that increasing sum of renewable power coevals would be a new challenges in footings of a dependable, safe and economically manageable grid operation. Soens and et Al. [ 9 ] investigated impact on the power grid due to dynamic behavior of a air current farm. The computing machine simulation patterning provided simulation results impacting system stableness with seeable graphs at different theoretical account status ( wind velocity, wind turbine specification, location ) . This would be utile for power system operators to verify the alteration in the system and investors of air current farm to do an economically and technically executable determination.

Constraint and Development of the macroeconomic theoretical account

In general, a assortment of equations and variables used in macroeconomic theoretical account are likely to set up and simplified based on economic theories and premises. In add-on, the economic sciences, as societal scientific disciplines, includes the societal behaviour of single and house. Due to these barely predictable behaviours and outlook, the variables which were assumed as inactive are likely to dynamic in the existent economic system. [ 5 ] Therefore, despite much more sophisticated premise and equation in the modern economic theoretical accounts, the theoretical account has failed to reflect and calculate the existent economic system particularly in instance of sudden fiscal daze such as the planetary fiscal crisis in 2008 and the Great Depression of the 1930s. i? eY? e??i?µi?„e?° i-?e?‰

However, the macroeconomic theoretical account has been developed by seting the economic theory and complementing the theoretical account with more realistic followed by its prognosis failures in the yesteryear. Besides, the attempts to cut down its prognosis mistake have been continued. [ 5 ] Therefore, despite its restriction, it seems obvious that the macroeconomic theoretical accounts are utile in many contexts.


This essay has showed my optimum economic system and described the principle of my determination on the economic policy in the Virtual Economy theoretical account to accomplish the optimum growing rate and unemployment rate. Besides, I have reviewed the simulation consequence and difference from my outlook based on the basic rule of economic theory and theoretical account.

In add-on, the essay has explained the utility of the macroeconomic computing machine modeling every bit good as general computing machine patterning with some illustration of existent application in economic system and power technology. In malice of some restriction of the modeling, the macroeconomic computing machine theoretical accounts have been used and seem to maintain being used in the hereafter for the diverse field.