The Basic Structure

Abstract

The complete model of the closed economy developed in this study contains five centralized decision-making units interacting in nine markets. The non-financial markets include those for labor, consumption goods (nondurables), and capital goods. Separate financial markets exist for checkable deposits, advances, IOU’s issued by the household sector, government bonds, equity shares issued by the private nonfinancial business sector, and equity shares issured by the private financial sector. Together these markets simultaneously comprise a market for high-powered money. The model also contains non-market mechanisms through which the household sector produces some of its own services and selects the optimal volume of public goods to be produced by the government. Figure 2.1 provides a visual overview of the closed economy as described in this study.