(Neo-)Classical Theory - Virtual Economy Policies

Now why not try out some of these policies on the Virtual Economy to see how effective they are? As we have seen the basis of Classical policy is to intervene as little as possible in the short run, but just to control inflation. For the long-term supply-side policies will be needed to improve the workings of markets and reduce unemployment.

Try this on the model :

• Use interest rates as your main weapon to control inflation
• Try cutting taxes, but matching this with an equivalent decrease in government expenditure. This should have no effect on demand but help improve incentives.

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