Special Lecture on Macroeconomics by 天風

 Hello. This is 天風. There is a formula: income - expenses = profit. In economics, it is common to think of income as production quantity x price. However, in the real economy, it is not always possible to sell the entire quantity produced, so it seems to be appropriate for the general formula for income to be sales quantity x price. If you could sell everything you produced, you would mass-produce Benzes, right? Therefore, in this case, if the sales quantity is Acheieve x(Ax) and the price is price(p), it becomes pAx. Regarding costs, the cost per unit is multiplied by the production volume, so production volume (x) x marginal cost (MC). So, if you become an enlightened monk who doesn't need profits, your profits will be zero. You can't imagine zero profit. If someone asks you to buy something without asking, you won't accept it. At least let me buy you a piece of candy. In the end, income - cost = profit is pAx - xMC = π. If profit is zero, pAx=xMC, and sales pAx and expenses xMC match. If the production quantity is 15 units, the sales quantity is 10 units, and the marginal cost is 5 dollars, then p=xMC/Ax, so p=(15×5)/10=7.5 dollars. In other words, in this case, if you set the price per unit to $7.50, you will not be in the black or in the red, and your sales and expenses will be the same, meaning your profit will be zero.

At this point, I'm going to go crazy, but in macroeconomics there is an idea called the quantity theory of money. The formula MV=PT is where M: money supply, P: prices, V: money circulation velocity, and T: real GDP. Here, the people who hit the nail on the head are sharp. If PT=MV, it can be reduced to the formula of income=cost. If p=P, T=Ax, M=x, V=MC, both equations will match. Furthermore, if we consider M: money stock M3, T: real GDP, P: CPI (consumer price index), and V: multiplier effect, the story becomes more and more extensive. Both equations pAx=xMC and MV=PT are also related to the IS-LM model of macroeconomics. From here, new ways of thinking will continue to emerge through macroeconomics and microeconomics.

To press one more point, the formula p = MC is famous in microeconomics, but if P (prices) = V (multiplier effect), then M (money supply) = T (real GDP). Once we get to this point, we can see that by matching the current money stock M3 of 1,500 trillion yen to real GDP of 550 trillion yen, we can realize an efficient economic environment suited to market principles.

As an aside, money stock = credit multiplier x monetary base.
Monetary base = “Bank of Japan notes issued” + “money in circulation” + “Bank of Japan current account deposits”.
that's all. See you soon.