0
$\begingroup$

From the equation of exchange: $MV=PY$, where $M$ is the money aggregate, $Y$ is the real output, $P$ is the price level and $V$ is the velocity of money, we derive $\% \Delta M + \% \Delta V = inflation + growth\ rate$. How will these equations be affected by inclusion of imports/exports, and international financial transactions?

$\endgroup$
0
$\begingroup$

Mine is not an expert opinion, but just adding my thought since the question went unanswered. MV=PQ has got nothing to do with trade deficit. Nor the equation will be impacted by varying import/export.

This is because PY is the nominal GDP. Which means, PY is inclusive of real gdp(C+I+G+(X-M)), where as (X-M) is the export-import. Putting it plainly will be like, it doest matter if the exports or import varies or if it is impacted. This variation will be adjusted in the RHS of the equation. So when we calculate Velocity it should not matter theoretically.

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.