Variables

In place of the sliders that were provided to the user in the previous version of this model we have inserted a converter that contains a table of fractional government consumption rates as input values for the fractional government consumption rate.

All other variables in this model remain the same as in Intervention version 1, and I will describe the fractional consumption rate table in the simulation tab.

Simulation

Click the run simulation button and you will again see the values mapped out in the simulation panel as you did in the preceding models. As in some preceding models you have no need, unless you wish, to run additional simulations, since you will get the same results on each simulation.

Savings, Production & Consumption

Under the Savings, Production & Consumption tab you'll see the following results for the three variables plotted:

Total Consumption Rate

consumption rate slows. The increase in government consumption actually retards the growth in consumption throughout this period.

Production Rate

The production rate, although it increases throughout the duration of this model, you will see the total consumption rate rise throughout the duration of this simulation. Every ten years consumption accelerates briefly in conjunction with the rise in government consumption. After each acceleration in consumption, however, the rate of increase in the total does so at a steadily decreasing rate. You can see the difference this makes, if you compare this simulation with that in Simple Economic System Version 1. The production rate tops out at about 1,600 economic units per year compared to 1,700 economic units per year achieved in Simple Economic System Version 1 with the same fractional consumption rate (0.9).

Savings

Savings, in economic units, will accumulate in a decreasing rates over the 50 year period of the simulation.

Fractional Consumption Rates (Two)

Fractional Consumption Rate

The fractional consumption rate in this model has been set at a constant 0.9 (or 90%), which gets multiplied by (production rate less government consumption).

Fractional Government Consumption Rate

The fractional government consumption rate (as set by the Fractional Government Consumption Rate Table) starts at 0 and increases every 10 years by a decimal point (i.e. 0.0, 0.2, 0.3, 0.4, 0.5).

Consumption Rates

This tab provides a view of only the consumption rates. The private consumption rate falls off with each increase in the government consumption rate, which rises in steps throughout the simulation. Advocates of government spending think this amounts to a reasonable trade-off. The total consumption rate, however, slows throughout the duration of this simulation as described above.

Growth in Consumption

This chart shows a little more clearly the slowing rate of growth evident in the Production-Consumption & Savings chart. After a brief spike in the growth of total consumption after every increase in the government consumption rate, the growth of total consumption drops to a lower level. It starts at roughly 0.36% per annum and ends up at at about 0.2% per annum.

The figures in this chart show a small calculation anomaly because of the fact the growth rates are calculated from preceding periods. Since the model has no growth rate to begin with, it must make its first years calculation based on a zero starting point. I have chosen not to complicate the model to correct for this anomaly at this time.

Conclusion

It's time for you to draw your own conclusions.

I think you will find two patterns:

• Reduced rates of consumption (higher saving rates) lead to greater long-term production and consumption.
• Government consumption creates a drag on long-term production and consumption.

Now let's address the question: Where's the money?