A GDP dynamics model and monetary financial policy

Abstract

This article applies a dynamics approach in the research of monetary law of movement under the complex system of social economical operation, and characterizes the movement of money in a social institutional framework during GDP’s formation. Assuming that humans’ pursuit of the return of their money expenditure is a sensible course of nature, it defines the expression of money circulation velocity, and proceeds to deduce the basic differential equation of money circulation. By solving this equation, we can get the expression for a GDP dynamics model. After empirically testing the expression, this article draws a conclusion: GDP and the money in circulation (M0) share the positive correlation when the monetary financial institution remains unchanged.