User:Milesvantassel

ECONOMIC ONELINE

PREFACE: A one line of the economy in control loop format is presented here. This one line eliminates terms that can not be measured such as supply and demand and replaces them with economic terms that can be measured,such as the value of a dollar and profit margin. A one line is a simplification of the economy and can not fully represent the economy. The one line demonstrates how major components relate to each other.Finding proper gains for a variety of economic topics will stimulate discussions on what affects the economy and how. This is one of the goals of pictorially modeling the economy using a PID format. INTRODUCTION: Economic theory is normally expressed with algebraic representations and graphs showing there relationship between two or three variables. How these relationships change over time can be difficult to show. Control loops use time as an independent variable and all outputs are dependent on an error signal and time. Some inputs are controllable and can be changed in an attempt to accomplish a desired result.Showing how an output can be controlled is one of the advantages of control loop format. To read the a one line, remember a few simple rules:Outputs are always on the right. Inputs are on the left, top and bottom.When dividing the divisor is draw to the bottom.An output can supply inputs to more than one block. Negative signs drawn next to an input negates the value. Summing junctions must have the same units.

Supply and demand must have the same units for the summing junction. This summing junctions is using the value of supply and the value of demand. The result is an error signal. The error signal hovers near zero, sometimes negative for high supply and sometimes positive for high demand. A higher demand than supply creates a positive error signal. The output price will rise or fall with the error signal. It will also ramp up or down with time or integrated with time. The output changes in a relationship with the gains assigned to the PID block. The, P, or price PID takes the error signal and gives an immediate proportional change. Prices rise. Consider integral gain, I. PID block allows prices to climb over an integrated time until supply or demand balance; then the error signal goes back to zero where prices then remain unchanged. Sometimes prices go up because the price is rising. The PID block allows prices to change in this way using derivative gain or D. These three gains give the PID block its name. Not shown above are the links between supply and demand. Later we will see how inflation occurs and how supply and demand curves are represented, as well as what moves the supply and demand curves.To do this, a clear understanding of control loops is needed.A control loop can show more variables and show oscillations over time. Control loops can be expressed in mathematical terms. The majority of the mathematics are omitted. The topology is emphasized for a clear understanding of how economic variables relate to each other. PID loops show how things changes in relationship to time and how systems can become cyclical.The rules for understanding PID blocks are as follows:A PID block has three major components for which it is named, Proportional, Integral and Derivative gains. A Proportional Integral Derivative or PID block has an input error signal. When the input to the PID block remains at zero the output of the PID block remains unchanged at its current value. PID loops have a wide range of additional variables in other disciplines. They are not used here. When needed some PID loops will show an output limiting value.The first gain is algebraic. Proportional gain abbreviated Kp represents Kp*(Input). Kp is normally a constant but can be a variable. It represents a multiplication relationship between the input and output.It is simple multiplication. It is the multiplication of the error signal times Kp.The second value is used in calculus. Integral gain, Ki, is represented by Ki*(Time)*(Input). If you were to graph the input, or error signal, it would be the area under the line. Time would be on the X axis.When the error signal goes negative the output decreases as more negative area is accumulated. The output will go negative when there is more total negative area then positive area. Its value is time dependent. It value represents the area under the line.The third value is used in calculus. Derivative gain abbreviated Kd is represented by Kd*(Slope). Time would be on the X axis. When the slope of the error signal increases the output would increase. On a graph it would be the slope of the input, or error signal. PID loops always have an input that is preceded by a summing junction. The inputs to the summing junctions have at least one value is positive and at least one value that is negative. The units need to be identical. When the output of summing junction is zero, the PID block has an unchanging output value.A stable or unchanging PID block has an input near zero.

TOPOGRAPHY: Determining how many PID loops to draw and how they connect to each other is best described as the topography of the system. An increasing cash value creates additional demand. An increasing profit creates additional supply. A shortage of inventories will cause the existing inventory to become more valuable. A shortage of sales will cause the existing savings to have more value. An increase in market driven spending will cause the existing inventory to become more valuable. An increase in market driven production will cause the existing savings to have less value.Market Cash Value is the output of the supply loop.Market Cash Value is the input of the demand loop.Market profit is the output of the demand loop. Market profit is the input of the supply loop. The perception of a falling dollar creates spending. The perception of a rising dollar decreases spending. The perception that your last dollar is worth more the your first dollar is represented.

HOW THE PROFIT MARGIN LOOP IS DRAWN There are two types of profit margin. One is dictated by the market and the other is businesses desired profit margin. Any attempt to increase the desired profit will cause a response from the ASC PID; and,from the point of view of the market, the only way to increase the price is to increase demand or decrease supply. The only way a decreasing supply can be achieved, with a rising desired profit margin, is to draw the desired profit margin with a negative input on the summing junction. If the market profit margin goes up, such as in increase in demand, the one line shows the supplier will supply more.Looking at the desired profit, a business will typically not want the highest possible profit. A business will want to maximize its income. A business will competitively supply more at lower profit margins so long as income increases. This implies a business will have a low desired profit margin when it can not control the supply. Lets call businesses that can not control supply a market business. A market business will maximize their output to take advantage of the market profit margin. A market businesses desired profit margin is just above a value of zero. A monopolistic business that can control supply can maximize income by controlling the market profit margin by limiting supply. Limiting supply is shown as AS, UL= Monopoly Political Consequences. When this limit is hit, prices stop rising. This value can change,with the public or government opinion.Looking at a situation when cost rise, it is possible that a market profit margin will be less then the desired profit margin. Under these conditions the input to the ASC PID will be negative and the output will fall. This represents a falling supply. It is also possible that the market profit margin be less than zero. This would also cause the ASC PID to fall but now at a greater rate. Supply will be reduced until the demand side of the control loop pushes market profit margin to a value greater than zero.

An upward slopping ASC curve is typical of any supply loop. As cost that rise the curve will rise more slowly. This is represented after MIV, Market Inventory Value, portion of the supply loop. It shows that rising material cost will lower the market profit margin.

Supply is affected when the market profit margin exceeds the desired profit margin. For example: If you are trying to grab more market share, you would lower your desired profit margin to sell at a better price. Another method is to lower your cost which would boost the market profit margin. This gives the supply curve its equivalent upward slope. The ASC, Aggregate Supply Curve, PID takes an upward line and makes it upward sloping using the integration function. The Supply and demand curves are inputs to each other This four part PID loop can be redrawn. Shown below in PID form are the supply and demand curves. Demand affects supply and supply affects demand. The output of a demand curve is goods and services because purchases are converted to goods or services. The output of a supply curve is cash because sales are converted to cash. The links between supply and demand are spending and production

Suggested PID Values: MIV = Market Inventory ValueMIV,Kp = %Used capitalMIV, Ki = New capital installation timeMIV,Kd = Price added valueADC = Aggregate Demand CurveADC, Kp = Public Perception of shortageADC, Ki = Disposable IncomeADC, LL = 0; Lower LimitMCV = Market Cash ValueMCV,Kp = %Used capitalMCV, Ki = New capital installation timeMCV,Kd = Price added valueASC = Aggregate Supply CurveASC,Kp = Industry Perception of shortageASC, Ki = Disposable CapitalASC, LL = 0; Lower LimitASC, UL = Monopoly Political Consequences