Direct benefits lead to PQ=C+G'+I < C+G+I=C+T+S

As a conclusion of this article, under the fluid picture of money circulation, direct benefits (monetary assistance, or cash handout) lead to "PQ ≠ C+G+I''. Here an instance of direct benefits is monetary assistance during this covid-19 disaster. For measuring GDP, we should apply Y=C+G'+I=PQ, where G' is obtained by subtracting the budget for direct benefits from G.

A fluid picture of money circulation. The goods and services market is located in `A', and the household budget is located in `B'. `C' and `D' are government and financial markets.

Temporal evolutions of three growth rates of M, V, and nominal GDP

In a previous article, "A three-piece set for understanding the money circulation", we introduced two formulations of money circulation, M=G+I and V=1/(1-β). In another previous article, "A relationship between nominal GDP growth rate and  government spending growth rate", we introduced a relationship between the above two growth rates. In this article, we show temporal evolutions of three growth rates on M, V, and nominal GDP (Y).

Growth rate of nominal GDP (y-axis) and growth rate of M=G+I (x-axis).

This plot shows growth rates of M=G+I and nominal GDP. These growth rates are directly proportional with some variance. Under the flow of money circulation, magnitude of M=G+I determines magnitude of nominal GDP. This is a causal relationship.

From this result, we can conclude that the low growth rate of Japanese GDP in recent years comes from the low growth rate of M=G+I.

Contents.

• Growth rates of M=G+I and V=1/(1-β).
• Nominal GDP Growth Rates of Japan and USA.
• Characteristics of the growth rate of V.

A fluid view of money circulation

In this article, we describe money circulation in a fluid sense.

The figure below shows a waterway of money circulation. We expect that this attempt help scientists and engineers, who are familiar with fluid-dynamics and electronic circuits, understand the money circulation. It is easier to understand temporal evolution of money circulation via this image.

A fluid-like money circulation.