Keynesians - 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 Keynesian policy is to try to control the level of demand to get to full employment. If there is unemployment, then reflationary policies are needed, and if there is inflation then deflationary policies are needed.

Why not try the following on the model to see how it works:

• Watch unemployment and inflation as your main indicators
• If there is unemployment try to boost demand (cut taxes or boost government expenditure)
• If inflation increases too much try to dampen down demand (increase taxes or cut government expenditure)
• Once you have managed this try using interest rates as well (higher interest rate to reduce demand, lower interest rates to increase demand)

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