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By: Ahmed Ali Mangrio

Student of MS(Economics), Sukkur IBA and

Lecturer, Department of Commerce,

Government Islamia Arts and Commerce College, Sukkur.

Email: ahmed.mangrio@gmail.com

Why to simulate the whole economy?

In many ways simulation is mostly been used as method of research for proving or disproving some theories in economics with usage of mathematical models on data. But with the advent of multi-core high speed processors and online communications as well as transactions, there is room to make a simulation ‘of’ economy not simulation ‘in’ economy. Though it seems difficult but carries a high potential of answering many questions, some of which are:

1. Interdependence and relation between different theories of economics.
2. Calculation and interdependence of economic variables.
3. Evaluation as well evolution of different economic rules.
4. Mergers with experiments of other fields such as psychology, sociology, etc.

How to simulate a whole economy?

In economics we have been studying a thousand of indices, theories and variables. But in this case we have to first create a ‘transaction log’ of every economic institution. Then we have to put general economics rules in that system for checking.

Every economic institution whether it is person, firm or government gives some product or service to another economic institution and in return other economic institution pays for it. For example, a person working in textile factory produces cloths and those clothes are worn by another person.

We can say that sometimes we pay and did not get any service such as pennies given to a beggar. In this case we can say that we are receiving some service that we do not require (as begging of beggar or guitar music played by beggar). This will be treated as economic activity though not desired.

Now, If we take the payments out and draw the diagram we conclude that

In this case all services received by an economic institution are equal to all services provided to others by it. Means income is equal to expenses Assumptions: No Savings.

Here is model with savings:

The use of online accounts and plastic money can enable us to know incomes and expenses of a single person and/or economic institution.

We can calculate the services provided by each economic institution in this way:

Services Provided to Economy	Services Received from Economy
Economic Institution 1:	Economic Institution 1:
Service 1                        Rs. 150	Service 101                      Rs. 300
Service 2                         Rs. 200	Service 104                      Rs. 183
Service 4                         Rs. 133
Total                                           Rs. 483	Total                                            Rs. 483
Economic Institution 2:	Economic Institution 2:
Service 2                         Rs. 2000	Service 102                     Rs. 1500
Service 3                         Rs. 1000	Service 103                     Rs. 1500
Total                                           Rs. 3000	Total                                           Rs. 3000

If this balance sheet of Services is reported by all economic institutions then this will tell us many things in future.

The list of organizations which can help to simulate the whole economy:

• 1. People
  2. Firms/shops
  3. Banks
  4. Central Banks
  5. IFIs.
  6. Security Agencies.

The list of inventions which can help to simulate economy:

• 1. Computers with Internet and Cloud Computing
  2. ATM Networks with debit/credit cards
  3. Mobile Phone Networks with Funds Transfer Facility
  4. POS Terminals with Shopping Facility
  5. Business Accounting Softwares with Bar-coded products.
  6. Home Budget Softwares with SmartCards

Which things are hindering simulation of economy?

• 1. Different conventions used.
  2. Cooperation among organizations

Note: “These ideas are purely created from my own mind not through empirical scientific research. These may prove wrong now or with the passage of time. These are basically created as food-for-thought-for-research purpose only.”

Signature:

(Ahmed Ali Mangrio)

Dated: 15-06-2009

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