Clone of Clone of Austerity vs Prosperity
This model shows the basic functioning and dynamics of a 'modern monetary system'.
The non-government sectors, consisting of the private and foreign sectors initial y starts with zero currency units. It is important to realize that after creating a new currency the government must first spend currency units into the economy before they can be used: without currency units the private sector could not even pay taxes! A government that has its own freely floating currency can create a much money as it wants. It does not need tax receipts to finance its spending, and any money it spends into the economy above that collected in taxes represents income for the private sector. The model show that the government initially created 9 trillion money units, but spent only six trillion into the economy. The six trillion showed up as a government deficit but as wealth in the non-government sector.
Since the government can create as many money units as it wishes and transfer them to the private sector to ensure an adequate level of demand in the in the economy, austerity is unnecessary: money is available, though real resource may be scarce. This also shows that the government can contribute actively towards the creation of prosperity.
Please note that this model was originally created by Gene Bellinger, IM 3206, from which this version was cloned.