'Visual Analysis' Graphic Summary of the IEA Conceptual & Analytical Framework

Introduction

In a modern money economy, money is the life-blood of the system. As it circulates endlessly around the economy, it is the medium of exchange with which people buy things and make payments; the buyers' spending is the sellers' income.

Empirically, the now-traditional Keynesian analytical framework is based largely on the conceptual framework of the National Income and Product Accounts (NIPA). But the NIPA spending and income flows are merely the dollar values of the "real" goods and services that the economy produces. The NIPA are conceptually unable to deal with either the financial saving and credit flows that are so important in financing the spending, or the money-creating flows of the Federal Reserve and banking system that finance the overall growth of the spending and income flows.

As a result, the key Keynesian/NIPA concept of saving is empirically measurable only indirectly, as the difference between income and spending, leaving an empirical "financial gap" between actual financial saving and the credit-financed investment that returns this saving to the "circular flow" of spending and income. Moreover, the Keynesian/NIPA conceptual framework provides no way to analyze empirically the way "newly-printed" money actually finances the growth Gross Domestic Product (GDP).

IEA's Integrating Dynamic Money Flow (IDMF) conceptual framework "completes the Keynesian Revolution" by bridging the Keynesian/NIPA financial gap between saving and investment, thereby making it possible to functionally integrate the NIPA with the Federal Reserve's money-and-credit Flow of Funds Accounts, and by opening up the traditional "black box" between money creation and economic growth.
 
The IDMF Circular Money-Flow Diagram

To facilitate understanding of the IDMF conceptual framework, its graphic exposition is developed in three steps. Each step includes a circular-money-flow diagram, the corresponding macroeconomic equation, and a brief explanation of the functional relationships.

• Step 1 shows the basic NIPA-Keynesian Spending/Income Flows -- the money payments for goods and services.

• Step 2 adds the Credit Market -- conceptually, one big central "bank" -- and the
  Primary Credit Flows -- financial saving and the credit-financing of GDP spending.

• Step 3 completes the IDMF circular money-flow diagram by adding
  the Monetary Authority and
  the Sector Money-Inventories.

The Intra-Sector Money-Flow Diagrams

Unlike the Keynesian/NIPA macroeconomic equation, the basic IDMF macroeconomic equation is equally applicable in a micro perspective.

• Consumer Sector
• Government Sector
• Business Sector

Saving-Investment Money Flows

A "table-diagram" of the flow of Primary Credit from initial Primary Financial Saving to its final Primary Credit Financing of GDP investment and consumption. The vertical spaces show the relative amounts of the individual flows.

Macro Structural Analysis

Historical "pile-up" charts of macro components, for evaluating the effects of fluctuations and long-run trends.

• A-1 -- GNP Spending & Unemployment Loss, as % of Capacity GNP.
• A-2 -- GNP Income Side, as % of GNP.
• A-3 -- Primary Debt (Credit Uses) as % of Trend GNP
• A-4 -- Household Credit Assets & Money Stock (Credit Sources) as % of Trend GNP.

The Full-Employment Growth-Trend Conceptual Framework
For Analyzing Fluctuations & Managing Growth

More precise and functionally appropriate definitions of recession, recovery, depression, "soft-landing."

Putting It All Together: IEA Pocket Charts