Business structure,economic cycles,and national policy

A system dynamics model of the national economy is now being assembled. Preliminary studies show that the production sectors can generate three different modes of fluctuation in the economy similar to the 3-to-7-year business cycle, the 15-to-25-year Kuznets cycle, and the 45-to-60-year Kondratieff cycle. These several modes arise from the basic physical processes of production and the managerial policies governing inventory, employment, and capital investment. The three modes of economic fluctuation are easily confused, and have tended to be interpreted as if they belonged only to the business cycle, perhaps leading to inappropriate policies. The work is still in progress, but results to date have important implications for many areas, including capital investment and its effect on the business cycle, monetary policy, fine tuning the economy, the severity of future recessions, the Phillips curve, factors affecting unemployment, and the trade-off between unemployment and inflation.