Rebuilding the Theoretical Model of Inflation on Credit with Loanable Funds

  • D. Gareth Thomas


In this chapter, the core concepts of inflation, disinflation and deflation with expectations that underpin the credit cycle in Chapter  7 are modelled to provide a theoretical link that relates to the growth of loans and, consequently, to the endogenous flow of the money supply. The idea is to add to Friedman’s notion thatInflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than output’. Now put this into reverse, disinflation and deflation are forever and ubiquitously a monetary occurrence in that it can only happen because of an abrupt decrease in the growth of the money supply, which is less than the expected change in production, leading to real, destabilising effects, triggered by endogenous changes to the desires of commercial banks to create money in the economy.


Credit cycle Inflation Disinflation Deflation Money supply Economy 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • D. Gareth Thomas
    • 1
  1. 1.Department of Accounting, Finance and EconomicsUniversity of Hertfordshire Business SchoolHatfieldUK

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