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Developments in Economics & Business Education

1-2 September 2005

Using the Virtual Chancellor SimulationJohn Houston & Anne Gasteen

Economics’ Research Group, Caledonian Business School, Glasgow Caledonian University

j.houston@gcal.ac.uk a.gasteen@gcal.ac.uk

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Using the Virtual Chancellor Simulation

•Context : Level Three Macro theory module (IS-LM-FE; DAD-SAS)

But can be used at almost any level (incl. School)

•Web-based: http://www.virtual-worlds.biz/vwc/ (now reasonably reliable)

•Parameterized for the UK Economy

•‘Black Box’ but free to use

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Menu Commands

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Quick Run [1]1. Can change any combination of these four variables

2. Submit to the ‘Black Box’

…. or get back to the starting values

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Quick Run [2]•Increase basic rate of tax from 22% to 25%

Net weekly effect on sample households

Effect on key Macro aggregates

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Full(er) Run [1]

• Can change:

Income Tax, National Insurance & Spending Taxes

Government Spending on : Defence, Education, Law & Order and Health

Base Rate

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Full(er) Run [2]

Appears only to affect macro aggregates, but not households

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Full(er) Run [3]

Tabular & Graphical Output

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Full(er) Run [4]

Analysis of effects on the sample households

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Demo : 2005 Budget Measures

•Personal Allowance = £4,895•Income Tax Basic Rate = 22%

–Starting rate = 10%, Higher rate = 40%)

•National Insurance = 11%–Between lower and upper earnings limits (£94 - £630 pw) –above upper earnings limit: 1%

•VAT Standard Rate = 17.5% –Reduced Rate 5% (8% in model)

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Demo : 2005 Budget Measures

• Govt spending: Public Order & Safety = £31bn => 82.35%

increaseDefence = £28bn => 6.67% reductionHealth = £90bn => 20% increaseEducation = £68bn => 13.33% increase

• Basic Rate of Interest = 4.5% (reduction of 0.25%)

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Our use of VC at GCU• Three, one-hour supervised computer labs

Introduce - ‘Quick Run’Altering Direct & Indirect Tax Rates/AllowancesAltering Government Spending & Interest Rates

• Students attempt exercises throughout, considering the impact upon:

Households (several representative types)Macroeconomic Aggregates

• Assessable CourseworkReplicate, as far as possible, the most recent Budget &

Autumn Statement Individually, or in teams, depending upon scope & abilities