1. Explanation of foundations

This is a simple excel model based on previously described demand (buying power) driven economy.

As variable inputs we shall use: 

  • Gross margin
  • GDP growth
  • Wages growth
  • Savings as % of annual wages
  • % of supplement of missing buying power(BPadj) to optimal (100% realization of planned production)
  • Tax rate
  • Interest rate on state debt
  • % of monetary supplementing of buying power to  BPadj (BPadj  consists of taxes, new debt and new money. This % states what portion of BPadj  after deduction of collected taxes will be financed through monetary policy. The rest (BPadj  - taxes – monetary adjustmen) is necessary to finance through new debt.

Output from the model are:

  • GDP after certain number of years(devided between profit, taxes and wages)
  • Yearly and cummulative debt and monetary participation of gowernment on GDP
  • Portion of monetary policy on GDP

Checkpoints are:

  • Annual profit is equal of new money added to economy and new debt per year
  • Cummulative profit is equal of new money added to economy and new debt total

The purpose of the model is to show, how the indebtedness of states is changing depending on different types of development, government economy policies and how it is possible to lower the total indebtedness.

Simplifications in the model are:

There is only one type of taxation and that is profit taxes.
In real life there are many more indirect and direct  taxes (sales, VAT, property,wage) but we can say that the whole effect of these other taxes is the same as if the profit margin of companies was higher and so payed salaries lower. These other taxes are then recovered from profit (based on higher profit margin) through „tax rate“ which represents not just company tax rate, but rather „total“ tax rate on the economy as a whole. The effect on final buying power of respective participants (employees, companies,state) will be the same as without this simplification.