System Structure of Agent-Based Model Responsible for Reproducing Business Cycles and the Effect of Tax Reduction on GDP
which producers decide to invest when the internal rate of return is expected to be greater than the current interest rate and the funds for investment are assumed to be financed by internal funds only ( i . e ., without bank financing ). Calculated chronological change in GDP and average price of products indicates that the cyclical variations , namely business cycles , do not emerge under this experimental condition , as shown in Figure 5 . Not that the price of equipment as well as internal rate of return also do not show cyclical variations , as shown in Figure 6 . The primary reason for this
is that there is little to no change in the aggregate capacity of supply . Decreases in production capacity suffered by some producers due to the scrapping of equipment are balanced out by the surpluses of others . As such , without bank financing , variation in production capacity due to the scrapping of or investment in equipment cannot , by itself , influence the price of the retail product or the expected return . Therefore , marginal efficiency of capital is not considered a major factor for generating business cycles when there is any degree of surplus in the aggregate production capacity .
Figure 5 . Changes over time in GDP and the average price of products in the case with financing by internal funds only , where investment is judged based on the internal rate of return .
Figure 6 . Changes in the price of equipment and internal rate of return over time . 51