The Secret of Wealth Expansion

Introduction

In the grand synthetic model, when we consider total economic increment ΔY, supposing that it also matches the Cobb-Douglas model, we may have the following formula at inflation rate λ∆Y = K^𝜆H^q(1–𝜆)(1) and its logarithmic form Δy becomes∆y = 𝜆k + q(1 – 𝜆)h(2) where q means technological progress index. The q(1-λ)h contributes real wealth and the λk contributes imaginary wealth in the economy.

While the inflation rate λ measures money expansion as the imaginary part, the real part is measured by human creation as q(1-θ)h. Therefore, a rate R or r becomes useful to measure the real-imaginary ratioR = H^q(1–𝜆) / K^𝜆(3)r = q(1 – 𝜆)h / 𝜆k(4) When R > 1 or r > 1, real wealth expansion is larger than imaginary. Otherwise, the wealth expansion is only imaginary money effected by inflation. When R > 1 or r > 1, the real wealth expansion by technological progress exceeds the virtual capital expansion. If R< 1 or r < 1, the virtual wealth expansion is larger than the real wealth expansion so that the wealth expansion is only an imaginary expansion.

We also know that the capital function f(k) had a center position as

This means that the capital truly pushes the economy via equilibrium growth rate n and interest rate γ.

Meanwhile, an IS-LM-type model can be characterized by the following equations:

So we see that technological progress affects y via index q and money m affects y via inflation. Continuous technological progress and economic inflation promote y increasing, which is the secret of wealth expansion.

When we consider America, Europe, and Asia (with Canada and US representing America, UK, France, Germany and Italy representing Europe, and Japan and China representing Asia), we collect UN statistics (World Bank data) of GDP 2017 and 2018 in 2011 PPP prices, as shown in Table 1.

Data source:http://data.un.org