Finance And The Growth Of GDP

The main idea of the essay is to certify that Finance is the dynamic power of the growth of GDP.The first part, as the general conclusion of the essay identifies that GDP is a concept of flow rate, which is motivated by Finance. What is measured by GDP is that the total value of currency, including the final products and flow of the work in a certain country or area. Since GDP is a rate of flow, the products obtained through working although themselves contain use value,they are the material undertaker of GDP, which needs to be translated into currency through market exchange and then becomes GDP. Further, the currency value of GDP refers to the currency enters the circulation, rather than the currency holden in hand, nor the currency remains in the banking system. The currency not engaged in the circulation cannot be considered as GDP. Carl Marx said that:"Only when the commodities engaged in the circulation, they can be maintained as wealth and commodities, and only they are kept in gold or silver, they can maintain such flowing status.""If the reserved currency is not eager to circulate, they are metal of worthless, the soul of currency is gone,and they are cirlulated as the ash and dry bones."Thus, if there is no circulation of goods, there is no GDP, either is the currency.Dynamic power is the strength of pushing things being active. Finance is the dynamic power of GDP, that is to say, Finance can acitvate the currency and commodities to be revival from inactivity and disuse, and concludes the currency and commodities into circulation and becomes GDP and wealth. The dynamic power of Finance can be seen from daily life. For instance, household purchasing cars and houses through bank loans, it makes the currency maintaining in the banking system reactivated and enters the circulation; it also makes the cars in the factory activated and comes into circulation and makes the citizens travelling convenient and having new houses. Without Finance, currency, houses and cars may remain disuse, and would be inactivate, indynamic and worthless. Thus, as Marx said:"Public loans is one of the most powerful way of primitive accumulation of capital, it waves the wand and gives the currency power of growth and turns into capital.""Currency Ciculation is the capital out and in. Such useful and effective circulation breathe through the social life and maintain the politic system power and life. People can certainly compare it to the bloody circulation of animals."Finance can makes the currency being reproductive, this is the dynamic power of Finance; Finance endows the social working new power, and maintains the politic system activate and dynamic, this is the dynamic power of Finance.The most foundalmental fomulation in macroeconomics is GDP=Y+C+I+G+(X-M) .The other parts of the dissertation starts from this basic formulation, studying how Finance activates the Consumer Expenditure, Investment Expenditure, Government Expenditure, and growth of Exports, and becomes the motivation of growth of GDP.The second part of the essay argues that Finance is the dynamic power of growth of Consumer Expenditure. Consumer Expenditure lies the most significant part of GDP, and is the greatest pushing power of the growth of GDP. Finance enhance the consuming tendency, and activate the growth of consuming in an certain country, through providing consumer credit, insurance management and enhance of market liquidity. Consumer credit, as the bridge of future income and current consumption, plays significant role of consumption enhance and growth of GDP. Since the durable consumer goods is effecfed by current income, as well as the level of disposible future income. Thus the consumer credit plays inreplaceable role in the leveling process from the basic daily consumption centered with"clothes and foods"to the consumption mode of"live and travel". Finance, as the dynamic power of the growth of consumption expenditure, has greatly push the process of automobile financial credit and real estate credit. Those two econimies obtains great correlations with others, thus the development of those two economies, automobile financial credit and real estate credit can certainly drive the development of others, and finally reallize the growth of GDP. This is the Accelerator Principle highlighted in the Western Economics, and such accelerating dynamic comes from Finance.The third part of the essay point out that Finance is the dynamic power of Investment Expenditure. Investments are the activities of purchasing machines and factories. Companies need large amount of expenditure funds, however, none of the companies would maintain that amount of cash in hand. Thus when the corprates expect that the opportunities investments are coming, they can only collect funds through issuing stocks, funds,or ask for loans from banks. Thus what is before investments is collecting funds. Finance bridge the gap of savement and investment. On one hand, finance can reduce the information costs, provide liquidity to encourage saving and provide financial support for investments. On the other hand, finance can release the restrait of financing of enterprise, reduce financing costs to encourage enterprise investments. Thus Finance is the dynamic power of Investment Expenditure. Thanks to the existence of Finance, currency has got the opportunity of flowing and thus the opportunity of investments, and machines are activated to function in productive activities, workers are activated to have jobs, and final productions are activated to enters the markets as commodities, and thus plourish the trading activities. What has been discussed above is the Multiplier Effect in Western Economics, and the activation of the Multiplier Effect also comes from Finance.The fourth part of the essay discuss that Finance is the dynamic power of growth of Exports. Exports has great impact of the growth of GDP. Through the 30 years development since Reforming and Open up, China has successfully transformed from farming society to the society of industrial, and pocessed great power of productivity. For reasons, domestic market cannot digest all of those productive ability, and thus exports becomes the solution of over-productivity. And the transition from domestic trades to international economics is matters the existence of productivity departments. As while as proving financing service to export enterprises for trading purpose, the function of risk management also helps to hedge risk, and Finance also improves the Technological Innovation ability of Export Enterprise. By means of that, Finance decrease the exports costs, promote the competition of export products and the growth of the exports. What has been discussed above is the Multiplier Effect of trading in Western Economics, and the activation of the Multiplier Effect also comes from Finance.The fifth part identifies that Finance is the activation of government expenditure. Compared to the developed countries,such as US, the structure of GDP in China illustrate great part of government expenditure. The phenomenon of high rate of postal saving and of weak willing of issuing loans in commercial banks, makes the currency stay out of circulation and the slow selling items, which have passive impact on the growth of GDP. In such, governments collect sleeping currency and issue public funds and makes it into circulation through government expenditure, increasing the amount of currency in circulation, and thus improves the growth of GDP. Through the radiation effects of public investments and development of counterpart industries. It motivates the investments demands of related industries, increase the incomes of human resource, and thus activate the consuming expenditure. This is the Multiplier Effect of government expenditure in Western Economics, which also comes from Finance.Overall, Finance is the dynamic power of Consumption, Investment, Exports and Government Expenditure, driving the growth of GDP. Thus Finance is the dynamic power of growth of GDP.