Trond Andresen, Norwegian University of Science and Technology, Trondheim, Norway

Abstract: A dynamic model of money stock/flow relations for a generic economic agent is developed, and employed to model and discuss the long-range (decades) impact of returns on any form of saved or invested money on a macroeconomy. It is shown that, subject to realistic assumptions about behavior of economic agents, a macro-economic system with positive returns must eventually reach a depression-like economic state. The observed disproportionate growth of financial sectors in recent years is explained by the proposed model. Simulation runs are presented. An indicator for economic fragility is proposed.

Keywords: economy, finance, simulation, accumulation, crisis