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Economic Theory of Bank Credit$
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L. Albert Hahn

Print publication date: 2015

Print ISBN-13: 9780198723073

Published to Oxford Scholarship Online: November 2015

DOI: 10.1093/acprof:oso/9780198723073.001.0001

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The Limits for Inflationary Credit Expansion

The Limits for Inflationary Credit Expansion

(p.187) [2.*]D. The Limits for Inflationary Credit Expansion
Economic Theory of Bank Credit

L. Albert Hahn

Oxford University Press

This section addresses some criticism of Hahn’s theory and sets out the limitations of inflationary credit expansion. A strong inflationary credit cannot be prolonged ad infinitum because the ever-increasing prices will spark mistrust about the purchasing power of the economy, and long-term savings will be used for consumption. However this does not imply that any stimulating effects of inflationary credit are only transient and cannot cause further consequences. An economic upswing generally endures without ever-new doses of stimulation when it is caused by a reduction of the interest rate, not by an increase in prices. A further limitation of inflationary credit expansion is that a stabilising monetary policy can only be used to avoid any deviations from an average economic performance; in particular, it cannot be used to fix the average activity at a high level of employment.

Keywords:   inflationary credit, purchasing power, upswing, stabilising monetary policy, monetary policy, employment

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