Michael Jeschke

Simulation of an Economy - Impact of Interest to the Financial System

To understand the effect of Interest to an economy, one can carry out a simple computer simulation. The simulated economy is composed of:

• "N" groups of households (e.g. N=10), that differ in incomes, assets and consumption. Income that is not needed for consumption is saved in an interest bearing manner and increases the household's assets (in certain conditions the assets of households can become negative - they have to take credits!).
• The companies, who pay wages to the households and sell goods to them. Moreover, the companies take interest bearing credits (taken from the households' savings) for investments.

• an interest rate, valid for both savings and credits (both of which are assumed to be the same)
• a growth rate of the gross domestic product (GDP)
• simple rules according to which incomes and consumption change over time.

Documents:

	Matlab/Octave Script for simulation of an economy, by Michael Jeschke, based on Prof. Jürgen Kremer
	The suitable document (german): "Eine andere unsichtbare Hand des Marktes - von den blinden Flecken der Volkswirtschaftslehre" (Prof. Jürgen Kremer)
	The suitable presentation (german): "Eine andere unsichtbare Hand des Marktes" (Prof. Jürgen Kremer)
	Another interesting presentation (not directly related) (german): "Geldschöpfung - einfach erklärt"

Example of an output of the above Matlab-Script: