Studies On Consumer Credit And Domestic Demand

Since 1930's, overproduction and insufficient effective demand has become a hot potato for market economy countries. In fact, there are only two ways to enlarge domestic demand; one is to stimulate consumption while the other one is to stimulate investment. I noticed that governments of many countries have paid more attention to stimulate consumption in recent years, for example consumer credit is one method. However, there are theoretically doubtful points whether consumer credit can enlarge domestic demand or not, thus the relationship between them hasn't been confirmed. Therefore, to study on consumer credit and domestic demand, to understand whether consumer credit can stimulate consumption and domestic demand or not, to make it clear in which circumstances can consumer credit enlarge domestic demand and so on, these problems are not only the important contents of macroeconomics, but also have direct influences to macroeconomic policies. From the above, we can say that the theoretical and realistic meanings of the paper are quite significant.Governments of many countries attach importance to consumer credit while many scholars home and abroad also commit themselves to study on consumer credit and domestic demand. As far as I know, most of the scholars held the same view that consumer credit can enlarge domestic demand. For example, conclusion of F. Zweig is that in the long run consumer credit cannot stimulate consumption, and in addition, for the reason of fee for credit, consumer credit will decrease consumption. And in the short run, consumer credit can enlarge domestic demand. R. G. Hawtrey, a British money and finance theorist,has an aggregate demand theory and it says that the change of aggregate demand is the result of the change of bank credit. The increase of bank credit including consumer credit and investment credit will increase aggregate demand. Credit adjustment theory of Keynesian economics regards that broaden credit including consumer credit can increase investment and consumption and thus enlarge domestic demand. Economists in China for instance Professor Lin Yifu of Beijing University also took the same view that consumer credit can enlarge domestic demand.In this problem, the paper holds a different view. The conclusion is that only in specific assumptions can consumer credit enlarge domestic demand while the common situation is that consumer credit has no effect on enlarging domestic demand. This is the innovation of the paper. The paper distinguishes short run and long run in the study of the relationship between consumer credit and domestic demand, and based on strictly theoretical analysis get the two consumer credit theorems which are long-run consumption demand equivalence theorem and short-run domestic demand unequivalence theorem. For the long run, consumer credit cannot stimulate consumption demand, either installment payment or one-off payment, this is what the paper called long-run consumption demand equivalence theorem (the No.l consumer credit theorem). In the short run, as long as the expected investment profit rate is larger than loan rate and with sufficient information, consumer credit will not enlarge domestic demand, on the contrary, it will decrease domestic demand, this is what the paper called short-run domestic demand unequivalence theorem (the No.2 consumer credit theorem).The other innovation of the paper is to bring forward the two infers of short-run domestic demand unequivalence theorem. The No. 1 infer is, in the short run, if the inducement to investment is largeenough, then for the same capital, compared with using it in consumption, using it in investment will has more effect in enlarging domestic demand. The No.2 infer is, in the short run, if the inducement to investment is large enough, then for one capital, compared with using it in consumption, using it in investment will has more effect in promoting economic growth. The two infers settle the quarreling theoretical problem, which is the relationship between saving (or investment) and economic growth, and wh...