Introduction

Using the simple economic model that I developed in the first two sections, I have added a few elements to demonstrate the effect of government intervention.

I introduced the influence of government intervention with some minor changes to this simple economic model. I pulled the activities of government out of the previous model as its own stock and flows. (This set of stock and flows represents only a segment of the stock and flows of economic units. It does not represent an entirely different structure.)

Because the economic activities of government consist almost entirely of either direct consumption (e.g. military) or indirect consumption (e.g. transfer payments), it tends to increase overall consumption.

I described the two versions of this model in the next tab (above).

Intervention—Government & Money

These two scenarios differ from each other only in two respects—your ability to change variables and the addition, in the final scenario, of money prices.

Effect of Government Intervention (Scenario 1): In Scenario 1 you have the ability to change the variables (fractional consumption rate and fractional govt consumption rate) before each simulation.
Effect of Government Intervention (Scenario 2): In Scenario 2 you do not have the ability to change variables. This version shows the effect of the ratcheting up of government consumption over the duration of the simulation.

Conclusion

As we have seen in previous models, increased consumption, even though it may make us feel good and buy our votes in the short-run, eventually becomes a drag on the economy.

Attempting to "stimulate" the economy by increasing consumption contradicts sound logic and flies in the face of sound economic principles and theories. The two models in this section do not prove that economic stimulation does not work but they do demonstrate the effects of increased consumption based on sound economic reasoning.

Read a summary and conclusion of the two sets of models of economic systems.