The Phillips Machine (MONIAC)
BIZ-OMICS · A-Level Economics · The circular flow, injections, withdrawals and the multiplier
Name: ____________________ Class: ________ Date: __________
What the machine is
The Monetary National Income Analogue Computer was built in 1949 by the New Zealand economist A.W. (Bill) Phillips while he was at the London School of Economics. Coloured water stands for money. A pump lifts national income to the top, and the water then drains through tanks and valves that stand for taxation, saving, imports, investment, government spending and exports before collecting again as national income.
The model used in this simulation
- Taxation: T = tY
- Saving: S = s(1 − t)Y, where s is the marginal propensity to save out of disposable income
- Imports: M = mY
- Investment: I = 460 − 40r (£bn), so investment falls as the interest rate rises
- Government spending G and exports X are set by the levers
- Equilibrium: withdrawals = injections, so Y = (I + G + X) ÷ (t + s(1 − t) + m)
- Multiplier: k = 1 ÷ (t + s(1 − t) + m), the inverse of the marginal propensity to withdraw
These are simplified simulator choices for teaching, not official UK estimates.
Tell me why
- Why does national income stop rising after government spending increases?
- Why does a higher tax rate reduce the size of the multiplier?
- Why can a fall in interest rates raise national income by more than the rise in investment?
- Why might an economy with a high marginal propensity to import gain less from a fiscal stimulus?
- Explain the paradox of thrift using the savings tank.
Evaluation: limits of the machine
- It is a demand-side model: there is no aggregate supply, capacity limit or inflation.
- The propensities are fixed, but in reality confidence and expectations shift them.
- Real policy works with time lags and uncertainty that the water model only partly shows.
- Leakages are not always lost: savings can fund investment and imports earn other countries income that returns as exports.