This visualizer does not yet show how sectors dynamically react to changes in flows by altering other flows!
For example, if GDP falls then other changes may occur that are NOT currently triggered in the visualizer:
Example: reducing government spending might not reduce the deficit, despite current appearances in this visualizer.
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The + and - buttons only increase the font size in the sidebar and above and below the diagram.
The diagram and text within it stretch to fit within the browser window, so make your browser window as large as possible. Tip: the shortcut for full screen is F11 on Windows.
The flow animations currently only illustrate the macroeconomic circular flow concept in a general way. Limitations:
1. The magnitudes of the animated flows do not yet correspond to the magnitudes of the leakages and injections as controlled in the sidebar.
2. The inject once demo doesn't work properly yet, but it does let you see roughly how the core flow diminishes over time (lost to the leakages) when there are no ongoing injections.
The step-by-step narration has completed playing for this page.
The yellow information boxes that were just read aloud sequentially now all appear on the diagram.
Choices of next action:
Net Financial Assets example: A company that holds $100 in bank deposits as assets but owes $60 in debt has net financial assets (labeled Net Worth in the diagram, and sometimes also called Equity) of $40 (i.e., $100 minus $60).
Financial assets exclude tangible assets. If the company also owned a computer worth $30, its net financial assets would still be $40, though its overall net worth would be $70.
Most of the concepts shown here will be familiar to anyone with a knowledge of mainstream macroeconomics. However, the field of macroeconomics has multiple schools of thought, and they disagree with each other on some topics.
This tutorial's content is most influenced by a branch of economics sometimes referred to as Modern Monetary Theory (MMT) or neo-Chartalism, a part of the larger heterodox Post-Keynesian school. Here are some of its characteristics:
Sources for additional information on these topics:
"The underlying premise of the first proposition, which posits a close link between reserves expansion and credit creation, is that bank reserves are needed for banks to make loans. Either bank lending is constrained by insufficient access to reserves or more reserves can somehow boost banks' willingness to lend. An extreme version of this view is the text-book notion of a stable money multiplier: central banks are able, through exogenous variations in the supply of reserves, to exert a direct influence on the amount of loans and deposits in the banking system.
"In fact, the level of reserves hardly figures in banks' lending decisions. The amount of credit outstanding is determined by banks' willingness to supply loans, based on perceived risk-return trade-offs, and by the demand for those loans. The aggregate availability of bank reserves does not constrain the expansion directly. The reason is simple: as explained in Section I, under scheme 1 - by far the most common - in order to avoid extreme volatility in the interest rate, central banks supply reserves as demanded by the system. From this perspective, a reserve requirement, depending on its remuneration, affects the cost of intermediation and that of loans, but does not constrain credit expansion quantitatively..."
Recommended. Explains one thing at a time.>
All page content visible at once. Less animation.