             Running PEcon005.exe. Brief Instructions

All files must be in the same directory. The program should be running while reading this.

The diagram to the right shows the five active agents (control systems)
across the top. Red symbols in all parts of the diagram indicate parameters adjustable by the user as the program runs. For each control system, the reference value (desired value of the input variable) can be set, as well as the gain (the change of output variable per unit difference or error between input variable and reference signal). The variables shown with arrows entering each control system are the input variables, and are found in various places in the lower part of the diagram. The output variables are shown at the ends of arrows leaving the control systems, and show the variable that is adjusted in proportion to the amount of error in each control system. Output variables are also found in the lower part of the diagram.

The lower part of the diagram shows the "stocks and flows" in the physical system. The "stocks" are the cumulative variables, representing either inVentories of finished or purchased goods (V) or Reserves of cash (R).  The plant inventory and reserve are on the left. On the right are inventories of purchased goods and cash reserves for a wage-earning consumer (upper, subscript w) and a capital-income receiving consumer (lower, subscript k). Not shown is a plant reserve for investment, not of any importance in this version.

Between the plant and the consumers are the "flows" or rate variables, indicating the rate at which goods or money are taken from one inventory or reserve and put into another inventory or reserve. C ndicates a Consumption rate variable measure in goods per hour, and C*P represents the corresponding counterflow of money (capital P is price). Y represents a flow of wages or capital income from the plant to each consumer. 

Finally, U represents the rate at which goods are Used by each consumer after they are received. When they are used, they reduce the number of goods in the consumer's inventory and money must be spent from the consumers cash Reserve to replenish the goods.

Note that the wage consumer (w-consumer) has reference levels (preferred levels) for both goods and cash reserve, while the capital-income consumer has a reference level only for goods. Adding a reference level for k-consumer cash reserves would create a conflict, which requires a higher-level solution beyond the scope of Econ005.

The plant manager controls the inventory of goods at a reference level by varying the price per good. The same manager or another one controls the cash reserves by varying the multiplier used to convert earned wages into capital distributions, the income of the capital-income recipient.

SUGGESTED EXPERIMENTS

After the system has come to equilibrium, try doubling the wages to see the effects on consumption and price, before and after Then restore the wages to the original value of $200 per day.

Double the productivity and observe the effect on wages, prices, and consumption (before and after). Restore productivity to 200 goods per dollar.

Increase the goods used per day by the k-consumer from 50 to 90 units of goods per day. Observe the effect on prices, hours worked by the w-consumer, and income. Increase the k-consumer's use of goods to 120 per day and observe the effect. Restore to 50 units per day or restart the program.

Increase the productivity by a factor of two and observe the effect on the wage-earners' working hours. Then increase the use of goods by the k-consumer to restore the working hours to 8, and observe the effect on income of the two consumers. Evidently, an increase of productivity can be used either to lower working hours at the same standard of living for all (after adjustment for inflation), or to increase the standard of living for the k-consumers while leaving the working consumer's position unchanged. Or, of course, any intermediate condition.

Decrease the Inventory Reserve Control reference level to its minimum of 1 unit. Observe where the money goes. Also, observed the complete lack of permanent effect on the other variables.