Simulation

In order to see how different consumption rates affect the behavior over time of production, consumption, and savings, I suggest that you run 3 to 4 simulations on your own. You should include, in those simulations, one that uses the default value of 98% (.98). Then I suggest that you run simulations at the limits of the slider – a minimum value of 50% (0.5) and a maximum value of 120% (1.2). If you run additional simulations, use various reasonable values e.g. 92%, which amounts to what we refer to as an 8% savings rate.

At the suggested values you will get the following results:

98%

Modest increases in both production and consumption with a rising level of savings.

50%

A much more dramatic increase in all the values in the simulation. Please notice the difference in the range of the scales between one simulation in the next. Also, keep in mind the unrealistic hypothesis of a 50% consumption rate. I have allowed that rate to go so low in order to demonstrate the relationship between current consumption and long-term consumption. In a realistic situation a level of consumption would be controlled by the preferences of the actors in the market.

120%

Again a somewhat unrealistic consumption rate demonstrates the concept. It shows – dramatically – how excess consumption (sometimes referred to as dissaving) will actually reduce consumption in the long term.

Various e.g. 92%

Although in a free market actors will determine the ultimate rate of consumption, something in the range of 92% seems reasonable. With this rate of consumption production and consumption will increase over the long haul while savings grows continually.

 

Although these behaviors will not be as consistent over time as depicted in the simulations, they will not, in a free market, fluctuate as violently as they do under various forms of intervention.

 

Conclusion

Although the variables that directly influence rates of production will change over time, I have limited the control of this model to rates of consumption. I have done this in order to highlight the impact that consumption rates have on the long-term rates of both production and consumption.