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Subject: Interest rates and economic activity

the center of economic debate is economic activity, that is to say the means of production and distribution of wealth. Ensure growth presupposes the establishment of an economic policy very precise. All economic agents are affected by economic activity, so we take into account the role of banks, households, businesses and state. Certainly, the interest rate plays a vital role in economic activity. It is our responsibility to demonstrate its impact in the process of wealth creation. Can we "juggle" with interest rates to stimulate economic activity? What are the possible risks of regulating the interest rate? We can therefore analyze first the impact of interest rate theory in quantitative and should describe the place it holds among the opponents of this theory. Indeed, the interest rate plays a role in changes in credit and it is closely linked to money creation ...

A priori, the currency has three functions. She serves as the unit of account, ie standard values and it allows to compare products. Money is also a medium of exchange. Finally money is a store of value. However, this latter function is ignored by any current economic thinking, questioning where necessary the reasons for such omission. The interest rate leads to bous on the place of banks in the economic system. However, one can distinguish for this purpose the concept of neutral money, which is supported by quantitative methods. What is the role of banks and what is the state?
For the school of exogenous money, money must change proportionally to the increase of wealth. An adjustment is necessary because the reasoning is in terms of balance. Following the quantity theory, money is changing as prices. Hence the equation: MV = PT, M is money supply, V denoting the velocity of circulation of money, P is the price level and T transactions. It follows that money creation causes inflation which penalizes the economy in terms of international. According to the school of exogenous money banks must not take an active role in money creation, which goes through the credit depends on the interest rate is paid money. Low interest rates stimulated demand for credit as the example of the real estate market. The task of the banks has resulted in providing services in placing clients' savings. More importantly, banks must maintain a balance between the monetary base and money supply. This reasoning presupposes dichotomy between the real and monetary. The currency is considered neutral. Indeed, for Jean-Baptiste Say, the money is "the car value." In general, the classics are in the money "a veil". Refusing to let the market regulate or intervene leads to a disturbance and eventually to a rebalancing.
It is therefore understood that economic activity can not and should not be stimulated by the credit. Banks must not contribute to increased liquidity demands. Pigou also explains that the rebalancing is inevitable. If real balances remain stable and there is money creation, the situation necessarily lead to inflation. Households seek then, that real balances regain their value and their consumption would fall. Therefore, there would lower prices to sell goods. We thus find the initial situation because there is finally rebalancing. However, economic activity has been diminished by the decline in consumption. Changing interest rates and increase the money supply is therefore no a priori.
Monetarists headed Partner is Milton Friedman (Chicago School) strongly opposed to the Keynesian interventionism. They concede that in the short term inflation may play a beneficial role but in the long term anyway economic agents perceive the illusion of monetary policy and adjust their behavior in line with inflation. Furthermore, the return to equilibrium is more painful. The currency is therefore the role of unit of account, and just a medium of exchange. Whatever the balance of the quantity theory of money is maintained. This analysis attaches importance to the monetary base. By reducing the role of banks in financing the economy, the currency school somehow ignores the bank money. Banks can therefore act on interest rates to extend credit. In a paper economy, that is to say which bank money forms the bulk of the currency, interest rates influence economic activity. Establish how and to what extent?

Already in the 1920s, Wicksell pointed out the flaw in the school of exogenous money. His criticism of the quantity theory is to admit it would be checked in an economy where credit abstract no. But that is not the case in the real economy, where agents can rely on credit. He corroborates his analysis of the rate of interest. If the natural rate of interest exceeds the interest rate monetary investment is stimulated. Companies have no incentive to save and invest. And production is increasing and economic prosperity. Conversely, if the interest rate monetary exceeds the natural rate of interest then it is speculation. There is excess saving. We are not far from the logic of Keynes with the under-consumption. The interest rate is not neutral in the economy.
Keynes also criticized the quantity theory of money. There is no proportionality between M and P. The low interest rates used to extend credit by creating money. If the banks create money, they provide financing through credit and thus stimulate consumption. Economic recovery. Investment Business is based on expectations of household consumption. If they anticipate heavy use they will invest. We can finance the budget deficit of Keynesian policies by the credit through interest rates. The Keynesian analysis focuses on the demand for liquidity. The documents 5 and 6, the interest rates are high in 1986-87 and observed that it was in 1986 that the domestic credit knows the lowest increase (document 7). The credit depends on the good interest rates. However, credit has a range indisputable economic activity. It follows that economic activity is influenced by interest rates. Increasing the height of the credit in 1982: it reached 16.6% (document 7). It is observed that this year hitting a peak growth rate (document 1).

It is clear that savings, investment and interest rate are interdependent. As Wicksell showed, the interest rate may allow the investment to be stimulated and cause or contribute less to economic prosperity. The banking system is able to create money. It should however be alert to the currency depreciation, which penalizes the purchase of foreign products.