Transcript Economic Circular Flows short presentation - ecf

Economic Circular Flows, ECF
- a method of building macro economic models
and analyzing the results of political and economic decisions.
The ECF method is based on an interactive computer program
and a set of symbols for economic agents and connections (nodes).
The nodes are connected by payment flows or real flows.
Economic Circular Flows
The ideas of model building
• Entire economy
• Different layers
for different kinds
of flows
Payments
Real flows:
work, products etc.
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The payments are
connected to the
real flows by price
relations.
Dashed lines.
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The ECF program main window.
Menu with dropdown
submenues
Building components
Time scroll bar
Model drawing area
Info and message area
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Building components
Button to return to normal arrow cursor. The cursor is used
to point to (click on) components, move or resize them.
Economic Agent, eg public sector, households or private
sector.
Bank.
Hub for incoming and outgoing flows. Summation point.
Splitter. Splits a flow into different parts.
Process. Converts flows to other flows, eg work to products.
Production capital.
Source or sink.
Endpoint that connects a flow with another flow.
Account for accumulating assets and liabilities.
Flow Generator. Flows depending on a signal (see below).
Flow, eg, payment, work, products, etc.
Signal. Determines the flow in a flow generator.
Function that calculates a signal from another.
Explanatory text.
Button to delete a symbol.
Economic Circular Flows
Sample models
Model S1, The same as in the introduction.
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Production process with investments
Note: This is an example of an open model with real flows.
Economic Circular Flows
I have made a series of videos that show how the interactive process for building
a model works. You find the videos here.
There are five videos. Each one shows one part of the process.
Part 1
Part 2
The Households has an internal
structure with delays.
Wages are spent with one
period´s delay.
Part 3 Bank connection
Parts 4-5 Data is added
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The following slides show consequent
time steps with a simple closed
economy containing a bank(system).
At the beginning there is no money in
circulation. The process is started by
borrowing the necessary money.
The process continues with a high tax
ratio policy with hiring more public
employees. A low tax regime follows
with a smaller public sector and finally
also a smaller private sector.
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The model has prescribed and calculated parameters.
Prescribed variables are indicated by orange color.
Wages in public sector.
Wages in private sector.
Tax ratio.
Other prescribed conditons are:
Flow balance, FB , of public sector, private sector and Tax ratio splitter.
Price relations, P : Wage levels and price of goods and services.
Calculated variables are indicated by blue color.
Public loans.
Private loans.
Taxes.
Total income of households.
Private consumption.
Cost of services and price of products .
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The Model B1 starts
with no money in the
system.
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Time 2001
Money is added to
the system.
Wages are payed but
have not yet been used
for taxes or private
consumtion.
Public and private
sectors borrow in order
to cover for budget
deficit.
Economic Circular Flows
Time 2002
Tax ratio too low.
Public sector borrows
10 GKr in order to
cover for budget deficit.
Private sector has 10 GKr
surplus which is saved,
part of loans is payed
back, -10 GKr.
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Time 2003, 2004
Tax ratio adjusted to
public costs.
Marginal loans and
savings.
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Time 2005
Less taxes, 880 GKr.
Tax ratio lowered
from 0.45 to 0.40.
Public budget deficit.
Increased private
spending.
Public loans.
Private sector surplus
and savings.
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Time 2006
Public spending reduced.
from 1000 GKr to
900 GKr/year.
Less public borrowing
because taxes and private
consumtion are based
the previous year.
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Time 2007
Lower public spending.
Public balance.
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Time 2008
Still less public spending.
Public budget surplus.
Increased private
spending.
Private surplus and
savings.
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Time 2009
Less public spending.
Public budget surplus.
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Time 2010
Budget balance.
No loans, no saving.
GDP is now 2000 GKr.
It was 2200 GKr/year.
Tax ratio is now 0.40.
It was 0.45.
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Time 2011
Public surplus prescribed
in order to pay back
public loans.
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Time 2012
Public taxes are now
760 GKr and public
spending 700 GKr/year.
There is a public
surplus and loans are
payed back.
Private consumtion has
gone down and the
private sector has to
borrow.
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Time 2013
Private sector laying
off people.
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Time 2014
Private sector still
has losses.
The GDP is now
1800 GKr/year.
We have entered a
recession.
Note that the total
loans are 1800 GKr
= the money supply
needed for the yearly
GDP.
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We have now studied the payments layer of the Model B1
with one possible scenario. The consequences of different
tax ratios and total wage payments have been calculated.
The simulation raises new questions. What would happen if:
•the private sector had hired more people during good times instead
of saving the money.
•interest payments were added.
•the public sector could not borrow money.
•the private sector exports or imports goods.
There are certainly more questions …
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Now we will study the real flows of work and goods and services. Only two
points in time will be shown.
The wage levels are
400 kKr/year in public sector and 500 kKr/year in private sector.
Time 2005
The public and private sectors both
has an internal structure, production
processes with given productitivities
= 1 pmy/wmy.
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Time 2005
Time 2014
Public sector:
Total wages 1000 GKr/year.
Work done 2.5 million man-years.
Private sector:
Total wages 1200 GKr/year.
Work done 2.4 million man-years.
Public sector:
Total wages 700 GKr/year.
Work done 1.75 million man-years.
Private sector:
Total wages 1000 GKr/year.
Work done 2.2 million man-years.
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Work (Mwmy) and products (Mpmy)
Public sector work and services
Private sector work and goods and services
wmy = worked
man-years
pmy = product
man-years =
the production
from 1 wmy
at produtivity =
1 pmy/wmy.
Highter productivity
gives more products.
Productivity = 1.2
would give 20% more
products for the same
work.
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GKr/year
Private consumtion
kKr/pmy
Price of products
The price of products
can be calculated from
money spent and
production volume.
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The balance sheet of the
bank is calculated from
customer´s accounts.
The bank´s income statement is
empty because no interests were
payed or recieved.
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Model B1 showed a very simple system but many conclusions
can be drawn. It is possible to build more detailed models as
shown in the figures below.
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The ECF program is far from complete.
• Many features must be improved.
• This version has errors that must be corrected.
• I would like to add more drawing possibilities.
Several curves on the same graph and cross-plot (xy plot)
The program is the work of a single person. It can be seen as a prototype
for a much more advanced program. I invite anybody who is interested to
contribute or to take ideas for other projects.
I have been inspired by drawing programs and simulation programs, e.g.
Simulink. http://se.mathworks.com/products/simulink/.
I have chosen not to use the commercially available programs because:
•They may cost a lot. Simulink is not affordable for private persons.
•They do not have the special building blocks (components) suited for
the ECF type of models.
•They are based on signals and not on flows.
•They don´t have units for currency and real flows.
•They are not adapted for multi-layer models.
Economic Circular Flows
Lars Olert, graduated in Engineering Physics, 1969, has also studied economics
at university level.
Mail: lars.olert(at)vidingsjo.se.
Websites: wp.ecf-teori.se, old.ecf-teori.se/english.htm