Stabilisation Policy in a Closed Economy Author(s): A. W. Phillips ...

306 THE ECONOMIC JOTJZRNAL [JUNE
loop immediately above this represents the acceleration principle,
which adds another component to demand equal to the rate
change of production dt- multiplied by the acceleration coefficiei.t
k and subject to the acceleration time lag La.
The three loops at the top of the diagram represent the three
types of stabilisation policy. The error in production E is
obtained by subtracting the desired production Pd from the
actual production. (In the illustrations given in this article all
variables are measured as deviations from their values in an
initial equilibriunm position with production at the desired level.
Pd-~
Pt_
dP
D d (k La
P ++
FIG. 10
+? +E
Pd is therefore zero and e equals P.) The error, the integral of
the error and the derivative of the error are multiplied by-fp,
- fi and - fd respectively, fp. being the proportional correction
factor, fi the integral correction factor and fd the derivative
correction factor. The potential policy demand - is the sum of
these products, and subject to the operation of the correction
time lag L, determines the actual policy demand which is added
to the other components of aggregate demand.
The variable u represents a disturbance to the system, assumed
throughout this article to take the form of a spontaneous fall in
demand of one unit at time zero. Other forms of disturbance
could, of course, be assumed and their effects investigated, and
disturbances could be applied to other variables instead of, or
in addition to, demand.
u
P
1p