A Macroeconomic Model Displaying Growth and Cycles

Abstract

We have built and exercised a simple, veridical, macroeconomic model which displays growth and cycles as well as the influence of monetary and fiscal policy. Features of the model comprise a Keynesian structure with capital accumulation, the multiplier and accelerator, a Cobb-Douglas production function, disembodied technical progress, and lags in investment and output. In simulated operation of the model, technical progress drives the geometric growth in output and linear growth in employment. The investment function and lags operate on a random component of demand to produce cycles. The effect of variations in initial conditions, parameter values, and controls is demonstrated.