Using System Dynamic’s methodology to teach Macroeconomics

Teaching Economics largely involves the use of comparative static models relying on regression analysis for empirical verification. The purpose of this paper is to show that by using influence diagrams and causal loop simulations to teach macroeconomics, there are definite pedagogical advantages to be gained and it is hoped that more of these methods will be adopted by economics teachers in the future. As a vehicle for illustrating these methods, this paper investigates a model of the circular flow of income including the market of the factors of production, as well as injections and withdrawals. Advantages of the systems approach are demonstrated which bridge the gap between understanding the structure and understanding the behaviour of an economic system