ABSTRACT
The idea of simulation is like the concept of making a model of an airplane and testing it in a wind tunnel to study its behavior and to see what happens when various changes in it are tried. A simulation model will generally be a synthesis of many kinds of relations including some which are derived from econometric studies and from input-output analyses as well as others inferred from qualitative observation of dynamic processes. A simulation study will start with the production of a group of time histories each representing the outcome of a particular set of assumptions, exogenous variables, and policies. Although economists may often theorize about the aspects of economic policy as separate problems, successful policy making demands that their interdependence be understood and taken into account. Monetary policy works against inflation by inhibiting investment and may interfere with needed investment and distort the pattern of development.
