6 The Parameter Functions

The parameter functions must now be determined by economic accounting. The two equations have the basic structure

    (6.1 a)

and

     (6.1 b)

that means that the temporal changes in the field variables Y and K stem from the related sources and sinks. Now what sources and sinks do we have for Y and K in a capital-driven economy? The GDP Y has initially two propellants: Once the population growth, because a significant cause of GDP growth by itself is out to increase the number of consumers and entrepreneurs , caused by the natural population growth and immigration as well. So is the effective population growth, which possibly can of course be negative. Secondly, there are loans that drive the real economy. They are usually the strongest component of economic growth. The parameter function is therefore the rate of capital investment in GDP. These are described by their share from the total capital stock. The principal equation therefore gives

    (6.2 a).

Adding to this does the free parameter. This does arise such as when GDP is given to foreign countries without return in capital (such as development assistance through donations and unpaid on-site services, care packages, etc.) or if such donations¹² are accepted (). Accordingly, the increase on the capital stock is mainly due to savings and capital returns :

   (6.2 b)

The free parameterhere again describes the inflow or outflow of foreign capital without immediate counter-performance from the GDP. An outflow or inflowis also formed with the free money creation or destruction without counter-performance of any kind. is the income that is saved in the base year of GDP, increasing the total capital stock. Furthermore, more capital comes seemingly out of "themselve", namely the average interest rate across all asset classes. But now there is a causal relationship between the parameters and and the both functions. Because the actual interest of the banks assets must be earned in the final from the GDP, and therefore the balance is made by simple balancing:

   (6.3)

This makes it possible, in first approximation, to state the complete linear system of equations of Macroeconomic as

    (6.4 a)

    (6.4 b)

We call the function the net investment ratio and the net financial rate of the banking industry. This function must be determined in the next section in more detail. The above differential equation system¹³ is a so-called initial value problem. This means, that the values of the functions Y and K are to be determined from the initial values and and the values for later times are computed by adding the integrated change rates.

This can happen in the ideal case analytically, or if not possible by numerical methods. Analytical procedures are always preferred, because in contrast to numerical methods the analysis with takes all the dependencies considered further on to the derived equations. It makes possible a fundamental discussion and analysis of the equations of motion determined. In numerical procedures the dependencies of the solutions on the input parameters however can be determined only approximately by laborious variations of the input parameters.