Journal on Policy and Complex Systems
Those factors relating to the model structure ( such as the type of agents , their behavioral rules including relevant attributes variables ) are systematically changed one by one in the simulation to elucidate their effect on the tendency of the emergence of business cycles , positive influence of the reductions in income tax rate , and corporate tax rate on GDP .
4 . Simulation Results
4.1 The Necessary Model Structure for Reproducing Business Cycles
Figures 1 ( a ), 1 ( b ), and 2 show the
simulated results under the base model condition , in which it is assumed that investment decision-making is conducted based on demand , and the necessary funds for investment are financed from the bank with fixed repayment periods in half and internal funds in half . Here , it is confirmed that the inclusion of internal funds is not essential because similar results are obtained in the case with bank financing only . Figures 1 ( a ) and 1 ( b ) show that the cyclical changes in GDP , which incorporate the synchronized movements in the average price of consumption goods and average consumer income , are reproduced showing the emergence of business cycles . Moreover , the level of aggregate funds for investment is high during the period of a booming economy where GDP is increasing ( see Figure 1 ( a )). An increase in investment also results in an increase in the level of workers ’ wages at equipment makers during the same period of a booming economy , which induces the following increase in the level of workers ’ salaries at retailers , as shown in Figure 2 .
From these results , the business cycle mechanism reproduced by the base model is as follows . In the beginning periods of the booming stage , some firms with strong sales decide to invest in equipment , causing an increase in the wage levels of workers at equipment makers , which induces an increase in demand , wages , and other firms ’ investment at the aggregate level . After the majority of producers have made their investments , the total
Figure 1 . Change in GDP and total amount of investment ( Panel a ) and average consumer income and average consumer price over time ( Panel b ) under the conditions of the base model ( bank financing and investment decision-making on the basis of demand ).
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