How_Money_Works_-_The_Facts_Visually_Explained

Attempting

control

Governments can attempt to manage the economy by adjusting policies such as

taxes and influencing interest rates. Each adjustment can affect a small part of the

complete economic machine. However, the economy is usually beyond the direct

control of a country’s government, and its different elements interact with each

other in different ways. Forecasting its behavior is difficult, and attempting to

balance competing demands for resources requires clear political judgment.

Economic machine

This design is based on a real machine,

the MONIAC, a hydraulic simulation

of the UK economy built in 1949 by

economist Bill Phillips. Based on the

theory of national income, it showed

the connections between the different

parts of the economy using a system

of tanks, pumps, and tubes, and could

be used to make simple forecasts

resulting from policy changes.

ECONOMIC INDICATORS

Each part of the machine has a reading

associated with it. In an actual

economy, the indicators these readings

represent are collected and produced

by the country’s national statistical

bureau, generally using survey data to

assess levels of spending, employment,

and so on. One problem for the

government is the delay between

actual events in the economy, and

processing and receiving indicators.

S e e p p .116 –119

INCOME

Total earnings in

the economy.

DISPOSABLE

INCOME

Earnings left

after taxes have

been paid.

CONSUMPTION

EXPENDITURE

Household income

minus household savings.

INVESTMENT

Spending on

investment by firms.

Tax

Total tax paid

to the government.

See pp.126 –127

Interest rates

Amount paid for

borrowing money.

See pp.120 –123

Quantitative

easing

Government-created

money. See pp.124 –125

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