<p>Credit cards are a way of deferring payment in the form of inter-temporal substitution; it helps reduce the household's liquidity constraint that may prevent it from consumption smoothing as much as they would like if their transitory income was much more spread over the household's lifetime.</p>

<p>You are right that the amount of money doesn't change. Loans require giving away money, but credit cards are a way of creating debt, so banks do not need to hold more cash to give a line of credit like you suggest.</p>

CC BY-SA 3.0
2015-10-21T19:16:54.700Z
So is it right to say the money velocity increases? Or decreases?
Kun
CC BY-SA 3.0
2015-10-21T19:23:43.520Z
I'd say it increases.
Kitsune Cavalry
CC BY-SA 3.0
2015-10-21T19:27:32.713Z
And why is that? Why does money changes hands more often in this case. (Let us suppose people spend the same as usual, when they do not have credit card)
Kun
CC BY-SA 3.0
2015-10-21T19:56:19.853Z
1.) The marginal propensity to consume can increase for each individual consumer (can even be above one). 2.) Credit card companies are taking on the payment process with physical money. -- So with those two things the money velocity would increase.
Kitsune Cavalry
CC BY-SA 3.0
2015-10-21T20:19:45.717Z
But what if Let us suppose people spend the same as usual, when they do not have credit card. Then will there still br an increase in velocity?
Kun
CC BY-SA 3.0
2015-10-21T22:18:23.307Z
You were asking how money velocity changes when credit cards are in the economy. So when you take them out, there's no change to measure. You're asking if there will be an increase in money velocity, but relative to what? If you have more questions please make a new thread.
Kitsune Cavalry
CC BY-SA 3.0
2015-10-22T00:03:26.607Z
What you mean? I ma not taking credit cards out. I am simply saying people spend the same amount of money as usual even if they have a credit card
Kun
CC BY-SA 3.0
2015-10-22T03:05:46.307Z
In addition, banks need to pay for the merchants you've used your card against, so in the end bank needs more money to supply that.
Kun
CC BY-SA 3.0
2015-10-21T19:12:40.257Z
2015-10-21T19:12:40.257Z
Kitsune Cavalry
<p>The use (use-value) of credit cards are to facilitate exchange. Now you can buy commodities on credit without actually having to exchange material money. </p>

<p>If you can speed up circulation, the velocity of money accelerates. </p>

<p>The greater the velocity of money, the less you need in circulation. </p>

<p>I am speaking on Karl Marx's quantity theory of money</p>

<p>For Marx, the three factors that affect the quantity of money are:</p>

<p>1.Movement of prices
2.Quantity of commodities in circulation
3.Velocity of circulation of money</p>

CC BY-SA 4.0
2020-01-14T00:18:06.653Z
2020-01-14T00:18:06.653Z
Marx
<p>In my macroeconomics class, our professor showed an example of the introduction of the credit card. She says that this will decrease the money people are willing to hold, and thus increase the money velocity. But why is that true? I mean, although it seems like the credit card as a new mean of payment makes us feel we are not holding much money, but the credit card company are actually paying for us them using deposits. So the money people hold didn't actually change because while consumers hold less cash or deposit, banks that offer credit card will need to hold more cash or deposit to pay for it. So I think the claim that money velocity increases is false. Am I right?</p>

<macroeconomics><quantity-theory-of-money>
Does the introduction of credit card affects Money Velocity?
Kun
# Does the introduction of credit card affects Money Velocity?

(Asked by: username_0 on 2015-10-21)

In my macroeconomics class, our professor showed an example of the introduction of the credit card. She says that this will decrease the money people are willing to hold, and thus increase the money velocity. But why is that true? I mean, although it seems like the credit card as a new mean of payment makes us feel we are not holding much money, but the credit card company are actually paying for us them using deposits. So the money people hold didn't actually change because while consumers hold less cash or deposit, banks that offer credit card will need to hold more cash or deposit to pay for it. So I think the claim that money velocity increases is false. Am I right?

**Tags:** macroeconomics, quantity-theory-of-money

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## 2 answers

### Answer by username_1 on 2015-10-21. Score: 3

Credit cards are a way of deferring payment in the form of inter-temporal substitution; it helps reduce the household's liquidity constraint that may prevent it from consumption smoothing as much as they would like if their transitory income was much more spread over the household's lifetime.

You are right that the amount of money doesn't change. Loans require giving away money, but credit cards are a way of creating debt, so banks do not need to hold more cash to give a line of credit like you suggest.

> **Comments:**
> **username_0**: So is it right to say the money velocity increases? Or decreases?  
> **username_1**: I'd say it increases.  
> **username_0**: And why is that? Why does money changes hands more often in this case. (Let us suppose people spend the same as usual, when they do not have credit card)  
> **username_1**: 1.) The marginal propensity to consume can increase for each individual consumer (can even be above one). 2.) Credit card companies are taking on the payment process with physical money. -- So with those two things the money velocity would increase.  
> **username_0**: But what if Let us suppose people spend the same as usual, when they do not have credit card. Then will there still br an increase in velocity?  
> **username_1**: You were asking how money velocity changes when credit cards are in the economy. So when you take them out, there's no change to measure. You're asking if there will be an increase in money velocity, but relative to what? If you have more questions please make a new thread.  
> **username_0**: What you mean? I ma not taking credit cards out. I am simply saying people spend the same amount of money as usual even if they have a credit card  
> **username_0**: In addition, banks need to pay for the merchants you've used your card against, so in the end bank needs more money to supply that.  

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### Answer by username_2 on 2020-01-14. Score: 0

The use (use-value) of credit cards are to facilitate exchange. Now you can buy commodities on credit without actually having to exchange material money.

If you can speed up circulation, the velocity of money accelerates.

The greater the velocity of money, the less you need in circulation.

I am speaking on Karl Marx's quantity theory of money

For Marx, the three factors that affect the quantity of money are:

1.Movement of prices
2.Quantity of commodities in circulation
3.Velocity of circulation of money


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