Governments possess two sets of tools that help combat recessions – monetary and fiscal policy. However, the language of economics makes it difficult to understand these ideas; talk of ‘quantitative easing’, ‘fiscal stimulus’ and ‘stagflation’ only helps induce mental atrophy. But I’ve found two simulations that help promote the understanding of these concepts without the unneeded lingo.
Keeping inflation under control
Firstly, the Bank of Finland’s monetary policy simulation allows you to control monetary policy; your goals is to keep prices stable (you’d be pretty panicked if the price of bread kept going up everyday). Your only tool is the interest rate, which…oh right – no lingo. Basically, low interest rates help increase prices because people save less (you get less interest at the bank) and buy more things. If more people buy more things, prices go up. This game is quite visually stimulating with colorful animation – though the highlight has to be the TV commentator who updates you on the status of the economy – in Finnish. Classic stuff.
Revenues & Expenditures.
Secondly, ‘The economy, stupid‘ puts you in control of a small European country’s fiscal policy; you control how much the government takes in (through taxes) and how much the government spends (through retirement/unemployment benefits and public sector spending). As you start, the country is spending more than it’s taking in, and you’ve got to bring things into balance before the next election (the people care what you do with their money). Your decisions will impact certain groups more than others so watch your approval ratings – they may come to haunt you. Also, your country is quite small and so depends heavily on the global economy for growth – exports will help your economy grow, along with you revenue. But the global economy is quite unpredictable. By fiddling about, you can try your hand at running a welfare/socialist economy (high taxes, high spending) or a laissez-fair/business friendly economy (low taxes, low spending). It’s your economy, stupid.
And that’s jus’ the tip.
