[01] Mingan Zhan, Business School, Yunnan University, Kunming, China. [02] Zhan Zhan, Faculty of Economics and Business, KU Leuven, Leuven, Belgium.

The fictitious economy and the substantial economy are two unique forms in the macro economy. The balance between the two determines reasonable macro interest rates, normal inflation rates, potential output growth rates, and minimum unemployment rates. Countercyclical monetary policy has also changed the operating state of the economy system while restraining the cyclical fluctuations of the macro economy. In order to get these conclusions, this paper first defines the measurement methods of fictitious economy and substantial economy and their relations in economic operation, then analyses the economic significance of the balance between them and the causes of imbalance, and finally predicts and verifies the changing rules of various macro variables in these two forms. The greatest feature of this paper is that all inferences are verified by statistical data.

Cobb-Douglas Function, Fictitious Earning Ratio, Substantial Earning Ratio, Average Earning Ratio, Marginal Earning Ratio

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