You are looking for something more like this
model[{A_, II_, Y_, CC_}] :=
Module[{Anew, Knew, Rnew},
Anew = (1 + z) A;
Rnew = a Anew CC;
Knew = (1 - a) (Sqrt[b] Rnew) + II;
{Anew,
(1 + m) II,
(1 + n) Y,
d (Y - Knew)} ]
NestList[model, {2, .5, 5, 2}, 10]
Instead of having all the Set going on, NestList it's just a consequence of how its setup that the thing keeps changing.
Before doing the Manipulate it needs to know which variables to manipulate, one way to do this is to insert the function into the definition like this
Manipulate[
NestList[model, {2, .5, 5, 2}, 10], {{z, 0.3}, 0, 1}, {{a, 0.2}, 0,
1}, {{ b, 3}, 0, 5}, { {d, 0.6}, 0, 1}, {{e, 0.95}, 0,
1}, {{m, 0.2}, 0, 1}, {{n, 0.4}, 0, 1},
Initialization :> (model[{A_, II_, Y_, CC_}] :=
Module[{Anew, Knew, Rnew},
Anew = (1 + z) A;
Rnew = a Anew CC;
Knew = (1 - a) (Sqrt[b] Rnew) + II;
{Anew,
(1 + m) II,
(1 + n) Y,
d (Y - Knew)}
])]