Market Dynamics: Measuring Impact of Economic Events and Government Programs on Production and Employment

Abstract

The impact of austerity, fiscal and monetary programs has been a subject of numerous studies and findings regarding the effectiveness of such government policies in combating economic downturns by stimulating growth, increasing employment, and promoting investment. The recently introduced Market Dynamics method has been extended to provide a dynamic Production model that incorporates employment, wages, consumption, investment, government spending, interest rate, taxes, and other related factors. The model is used to compare the impact of austerity, fiscal and monetary programs in response to an economic downturn and to measure the size and effectiveness of government actions including changes in spending, taxation and interest rates. A conservation of commerce principal is defined stating that money flow from wages, spending, borrowing and interest activities must match the change in production trades. The latter mechanism is responsible for a lag in response as the full impact of an event is gradually realized over its time horizon.