System Structure of Agent-Based Model Responsible for Reproducing Business Cycles and the Effect of Tax Reduction on GDP
most of the funds distributed could be transferred to the bank account without being used in the market . This policy corresponds to the government placing job orders at a value far above the market price or paying money for jobs that have no economic value . The ratio of the expenditure for the subsidy for firms to the total spending is defined as the inefficiency of government expenditure .
3 . Simulation Conditions
The simulation conditions as experimental levels are divided into two categories , as shown in Table 2 : analyses of the reproducibility of periodic changes in GDP ( i . e ., business cycles ) and the positive effects of tax reductions on GDP .
In the former experiment , producers ’ decision-making processes regarding investment in equipment and the means of financing said equipment are changed as input conditions to find the necessary model structure for reproducing periodic change in GDP ( i . e ., a business cycle ). The changes in consumers ’ wages and the amount of money spent on investing in equipment are also analyzed . The criteria of the producers ’ decision-making on investment as experimental levels include the case based on demand , the case without investment , the case with random investment at a fixed interval , and the criterion based on internal rate of return . In the case based on internal rate of return , the producers decide to invest when the internal rate of return is expected to be greater than the interest rate , which is assumed to be constant . This criterion on investment corresponds to the case of decision-making based on the marginal efficiency of capital proposed by Keynes ( 1936 ). Here , the internal rate of return is calculated using the expected value of the investment ’ s marginal productivity , the price of the product , and the operating ratio of the equipment . The life of the equipment is assumed to be 60 , and the price of the equipment is assumed to be EP t + 1 = EP t ( 1 + 0.1 ( O t / Y )), where EP t is the price of the equipment in period t , O t is the number of equipment orders received in period t , and Y is the production capacity of the equipment manufacturer . The means of financing the funds for buying one unit of equipment as experimental levels include the case with bank financing , the case with internal funds , the case with the issuance of stock , and the combination of them . In the base model , funds for investment are assumed to be financed from the bank in half and internal funds in half .
Thus , the factors relating to the model structure changed in the former experiment are decision-making rules on investment and financing rules for investment , including the experimental levels of four and three , respectively .
In the latter experiment , government and executives are added to the base model as additional agents and consumers are divided into the public and private workers and executives . Paying tax is added to the base model as additional behavioral rules for consumers who pay income tax and for
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