The flight instructor reported that, during a flight review for the pilot, after takeoff and when the airplane was between about 300 and 400 ft above ground level, he reduced the throttle to idle to simulate an engine failure. The instructor expected the pilot to make a gradual right turn to land midfield on the intersecting runway. However, the pilot did not respond as expected, so the instructor assumed control, made a right turn, and lowered the airplane's nose. The pilot reported that, about the same time, he thought the airplane was too low, so he advanced the throttle full forward, but they could not arrest the descent. They felt the airplane shudder, and it experienced an aerodynamic stall and impacted terrain. A postimpact fire ensued under the engine cowling, which the passenger extinguished using the onboard fire extinguisher. The airplane sustained substantial damage to the fuselage and both wings. Examination of the propeller revealed curling and chordwise scratches on the blades, and the engine monitor indicated that the engine was turning at 2,625 rpm after the throttle was pushed forward, both of which are consistent with the engine producing high power at the time of the accident.