1

How Money Matters: An Illustration

Interest Rates,Money Supply,

and CreditFlows Change

Federal Reserve Acts

Aggregate Demand for Goods and Services

Shifts

Economy’s Output and

Prices Respond

2

How Credit Matters Money, Credit and the Economy Are Money and Credit All That Matter? Money and Credit Flows: first fiddle or secon

d fiddle

3

How Credit Matters

In an economy where a large percentage of lending flows from commercial banks and other depository institutions, changes in the supply of money will be closely related to changes in the supply of creditthis was typical of the U.S. economy until the

late 1970s and early 1980s信用：在一定时期内，货币从贷方直接或是通过

金融中介流向借方。

4

How Credit Matters

Since the early 1990s, changes in money and credit flows have not been as closely related

Credit flows come from other sourceschanges in credit extension by depository

institutionschanges in lending at nondepository financial

institutions and other nonfinancial institutionsforeign sources

5

How Credit Matters

To the extent that lending bypasses domestic depository institutions, the linkage between the money supply and economic activity may be weakened

this makes the job of the Fed more difficult

信用量（贷款扩张）也是决定支出与收入变化的关键因素。随着储蓄机构在信贷业务中所占份额的降低，货币总量与经济活动之间的关系也在弱化。

6

Money, Credit and the Economy

The growth rate of economic activity is measured by the growth rate of real gross domestic product (real GDP)the inflation-adjusted quantity of final goods and

services produced in an economy in a given time period

实际国内生产总值：在一定时期内，一个经济体所生产出来的实际的或是通货膨胀调整后的最终产品和劳务的产出。

7

Money, Credit and the Economy

Money and credit flows have a lot to do with fluctuations in economic activity

when the money supply and credit growth rates rise significantly, the general tendency is for real GDP to also grow

when the money supply and credit growth rates drop significantly, real GDP growth also tends to fall

货币供给、信用和利率的变化通常会改变经济中对商品和劳务的总需求，总需求的改变又会影响整个产出和价格水平。具体说，货币供给或信用量的增长以及随之而来的利率下跌通常会增加总需求，进而导致生产的扩张和价格的上涨。

8

Money, Credit and the Economy

There is also a relationship between the growth rate of money and credit and the rate of inflationthe consumer price index (CPI) measures the

cost of a market basket of goods and services that a typical consumer purchases the rate of change of the CPI measures the inflation

rate消费者价格指数：用于度量有代表性的城市居民消费

者购买的一篮子商品和劳务所需支付的成本的指标。

9

Money, Credit and the Economy

Whenever aggregate demand increases, there is a general tendency for output to rise fairly quickly and for prices to rise more gradually

Whenever aggregate demand falls, there is a general tendency for output to fall fairly quickly and for prices to respond with a lag

10

Money, Credit and the Economy

Nominal gross domestic product (nominal GDP) is the quantity of final goods and services produced in an economy during a given time period and valued at today’s priceschanges in money and credit are more closely

correlated with changes in nominal GDP than with changes in real GDP

名义国内生产总值：在一定时期内，一个经济体所生产的、以当前价格计算出来的最终产品和劳务的产出。

11

Money, Output, and Inflation

SustainedRise in Money

and CreditGrowth Rate

SustainedFall in Money

and CreditGrowth Rate

Increases in Output(Real and Nominal

GDP)

Decreases in Output(Real and Nominal

GDP)

Increases inInflation with a

Lag

Decreases in Inflation with a

Lag

货币供给或信用持续大幅度上升会增加产出；在某些时候，有一定时滞的增加通货膨胀率；反之货币供给或信用增长的持续大幅度下降会降低产出；在某些时候，有一定时滞的降低通货膨胀率。

12

Are Money and Credit all that matter?

The correlations among money supply growth, credit flows, the inflation rate, and real GDP are not perfect

this implies that changes in the growth rate of the money supply or credit are not the only factors that influence inflation and economic activity

货币供给增长率、信用量和通货膨胀、、生产增长率之间不具有强相关性，这说明其他因素，如现行的财政政策及预期，也会影响通货膨胀和经济增长。也就是说，货币和信用不能决定“问题的全部”。

13

Money and Credit

Other factors can exert a powerful influence on prices and output, especially in the short runfiscal policyexpectations about future monetary and fiscal

policyexpectations about future inflation

14

Money and Credit Flows Economists do not fully agree on the past or

current role of money in the economyin the 1970s, the economics profession was

dominated by monetarists economists who believe that money matters more than

anything else in determining the overall health of the economy

货币主义：强调货币在经济整体健康发展中的重要作用的经济学流派。

other economists focus on credit flows that trigger changes in spending and others believe that money and credit are the only two important flows in the economy

still others believe that money and /or credit flows are only two among many factors affecting the economy.

15

few dispute the contention that the weight of the historical evidence produced by economists indicates that changes in the growth rates of money and credit exert a powerful influence on spending, production, inflation and unemployment.

关于货币和信用的具体作用，经济学领域一直存在争论：它们起多大的作用？具体怎样起作用？然而，因为有大量历史证据的证明，所以人们大都承认货币和信用对经济存在强有力的影响，尽管这种影响处于不断变化当中。

16

Summary of Major Points Firms and households meet in three

separate marketsfirms supply goods and services to the

product market, demand investment goods supplied by other firms, demand factor services in the factor market, and demand funds from the financial system

households demand goods and services in the product market, supply factor services in the factor market, and supply funds to the financial system

17

Summary of Major Points

The interest rate is the cost to borrowers of obtaining money and the return on money to lendersit is the cost of creditthe quantity demanded of money and the

interest rate are inversely related

18

Summary of Major Points

The demand for money is determined by the spending plans of spending units, which are usually positively related to income

The supply of money is strongly influenced by the Fed through its control over reserves and the required reserve ratio

19

Summary of Major Points

The interaction between the supply of and the demand for money determines the equilibrium quantity of money and the equilibrium interest ratethe initial effect of either an increase in the

money supply or a decrease in money demand will be a fall in the interest rate

the initial effect of either a decrease in the money supply or an increase in money demand will be a rise in the interest rate

20

Summary of Major Points

Credit flows (loan extensions) are also a key determinant of changes in spending and incomeas depository institutions handle a declining

share of credit, the relationship between the monetary aggregates and economic activity may be diminished

21

Summary of Major Points

Changes in the money supply, credit, and the interest rate will generally alter the aggregate demand for goods and serviceschanges in aggregate demand will, in turn,

affect the overall level of output and pricesa rise in the money supply and/or credit flows and the

accompanying fall in the interest rate will generally raise aggregate demand and lead to an expansion of output and some rise in prices

22

Summary of Major Points

Historical data suggest that a sustained and significant rise in money supply or credit growth will tend to increase output growth and, with a lag, tend at times to raise the inflation rate

A sustained and significant fall in money supply or credit growth will tend to decrease output growth and, with a lag, tend at times to lower the inflation rate

23

Summary of Major Points

The correlations among the rate of money supply growth, credit flows, and both inflation and output growth are far from perfectother factors such as current fiscal policy and

expectations also influence inflation and economic activity

money and credit flows are not “all that matter”

24

Summary of Major Points

Controversy does exist within the economics profession about the specific role of money and credithow much do they matter and how precisely

do they matter?few dispute the contention that the weight of

the historical evidence indicates that money and credit flows exert a powerful, although changing, influence on the economy