Feedback

One of the most important characteristics of systems consists of the ability of elements to pass information back and forth between each other. Systems language generally refers to that passing of information as "feedback."

For this system, the consumption rate flow regulator needs information about the production rate in order to make decisions about setting the consumption rate. The model represents the transfer of that information by the dotted line and the arrow that runs from the production rate flow regulator to the consumption rate flow regulator.

How the model uses that information I will cover in the next tab (above).

New Variables

You can see that I have two bubbles labeled base production rate and fractional consumption rate. These bubbles contained variables used for controlling the behavior of the model. The feedback arrows transmit the values in these variables from one element to another.

Base production rate

In this simple model, base production rate sets the production rate at a consistent level throughout the simulation.

Fractional consumption rate

The fractional consumption rate consists of a fraction that, when multiplied by the production rate, determines the value for the consumption rate.

 

To keep the values the same as the previous model I have set the initial value for the fractional consumption rate at .98 (or 98%), which yields the same value as the 980 economic units in the previous model.

In plain language this fraction means that the system consumes 98% of what it produces.

In the next tab—simulation—I will describe how you can change the fractional consumption rate to run different simulations.

Run Simulation

If you click the run simulation button (without changing the value on the slider), the simulation will generate results exactly the same as in the first model.

To run an additional simulation, click one of the boxes in the upper right-hand corner of the simulation panel. That will either minimize, reduce the size of, or close, the simulation panel. (I suggest that you either minimize or reduce the size of the panel so that you can compare the results from one simulation to another.)

Use the slider (or enter a value in the box) to change the fractional consumption rate. Then click the run simulation button to see the effects of the new value.

Notice two things which will change on the chart. First, on the scale on the right-hand side, which indicates the stock of Savings, you will notice that the range of values changes. Savings will always begin at 10,000 economic units because we have entered that as a constant.

Second, on the scale on the left-hand side of the chart, which indicates the flows of production and consumption, you will notice that the range of values also changes. The production rate in this model will always remain at 1,000 economic units per year because we made that a constant.

By running several simulations you can see the effect of different fractional consumption rates. You can even insert a fractional consumption rate over one (or over 100%) to see how long the initial Savings will last if the consumption rate exceeds the production rate.

Conclusion

Although we have added an element of realism to this model by providing feedback from the production rate to the consumption rate, you can see that the simulation still does not seem realistic. Although adding a couple of feedback loops to this model adds an element of realism, we still have the problem of savings rising or falling without having an impact on production or consumption.

At any fractional consumption rate less than 1.0 Savings grows perpetually for as long as the model runs. Or, at a fractional consumption rate more than 1.0 Savings will decline to zero (with no limit in the model it will continue to decline.)

Realistically, actors in economic systems allow savings to build for a reason and we must account for the effects of rising Savings in our model. We will do that as we move to the final model.