Knut Wicksell focused on the indirect effects of increases in the money supply.

(From econlib "Wicksell distinguished between the real rate of return on new capital (Wicksell called this the "natural rate of interest") and the actual market rate of interest. He argued that if the banks reduced the rate of interest below the real rate of return on capital, the demand for loan capital would increase and the supply of saving would fall. Investment, which equaled saving before the interest rate fell, would exceed saving at the lower rate. The increase in investment would increase overall spending, thus driving up prices. This "cumulative process" of inflation would stop only when the banks' reserves had fallen to their legal or desired limit, whichever was higher."

Ad blocker interference detected!

Wikia is a free-to-use site that makes money from advertising. We have a modified experience for viewers using ad blockers

Wikia is not accessible if you’ve made further modifications. Remove the custom ad blocker rule(s) and the page will load as expected.