Macroeconomics

Quantity Theory of Money

let $m$ = money, $v$ = money velocity, $p$ = price levels for goods and services, and for $y$ = real goods and services. Then:

$m * v = p * y$

Is it relevant? Here are modern contributions:

This mathematical framework took two alternative forms, namely

(1) Irving Fisher’s famous equation of exchange,

$MV = PT$

where $M$ is the stock of money, $V$ is velocity of circulation, $P$ is the price level, and $T$ is the physical volume of market transactions; and,

(2) the celebrated Cambridge cash balance equation,

$M = kPy$

where $M$ is the stock of money in circulation, $k$ is the desired cash balance ratio, i.e., the ratio of the nominal money supply to nominal income, $P$ is the price level of the national product, and $y$ is real national income or the national product valued at constant prices.

Economic Lessons from Japan

• 1985, Japan has finally recovered from impacts of WW2

The Plaza Accord

• Preface: Japan was sustaining XX% growth, but this was weaning off and the US was concerned by competition from West Germany and Japan, however mutual trade war was not beneficial
• Solution: Artificially lower the value of the US Dollar relative to the currencies of West Germany and Japan

Types of Goods

• Veblen Goods: Consumption increases demand