The role of debt in aggregate demand

Xiaoyun Xing, Wanting Xiong, Jinzhong Guo and Yougui Wang

Finance Research Letters, 2021, vol. 39, issue C

Abstract: With the purpose of performing a simple and original analysis on the mechanisms through which money and debt affect aggregate demand, this paper presents a stock-flow-consistent model in which the role of credit creation of banks is emphasized. By conducting theoretical analysis on income determination in an alternative way, we demonstrate that the equilibrium national income can be expressed as flows generated from three sources, namely money circulation, private debt circulation, and total credit expansion.

Keywords: Aggregate demand; Money circulation; Credit expansion; Stock-flow consistent approach (search for similar items in EconPapers)
JEL-codes: E12 E44 E51 G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320305456

DOI: 10.1016/j.frl.2020.101653

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