Supply-Demand Equilibrium for the Goods and Services Market: A Dynamic Model on Romania's National Economy

Abstract

The present paper proposes a cybernetic approach to the national economy system of Romania in order to give the basis for identifying, describing and modeling of the main feedback mechanisms of regulation that appear at macroeconomic level. We have built in STELLA—Modeling and Simulation Software a dynamic feedback model for the demand-supply equilibrium. The stock-flow dynamic model allows empirical analysis of the system's states offering insight on its endogenous characteristics and behavior over time. The model also permits sensitivity analysis to exogenous stimuli. The data used for initialing the state variables of the model and parameters were taken from the official stats of Romania between 2007 and 2011, just before the economic crisis and the years of economic recovery. The results of the model simulations on extreme conditions, such as in which the scales of production do not change significantly in relation to profitability, have revealed that the model outlines a predictive reaction of the system, entering in decline—the national output having a descending trend. The structure of the model and its simulations sustain the rationality and validity of the purpose and we can conclude that it may become a useful instrument in macroeconomic governance.