<blockquote>
  <p>That being said what I find even more misleading is the fact that as a nominal interest rate increase credit increases.</p>
</blockquote>

<p>This is the so-called <a href="https://en.wikipedia.org/wiki/Fisher_hypothesis" rel="nofollow noreferrer">Fisher Effect</a>. You have to consider things upside down and, actually, the importance of money supply in the story.</p>

<p>"Credits" (here and there) stimulate demands (here and there) in the national economy. If supplies stay constant -- which it does empirically, at leasts temporarily --, markets will reach a new equilibrium via prices rising due to these stimulated demands, which generates inflation. Finally, higher inflation means higher nominal rates. Why? Because higher inflation (here and there) actually means higher (nominal) returns on equity (here and there). Incidentally, commercial banks (have to attract deposits and) will adjust their (saving) rates accordingly.</p>

<p>But remember that only <strong>real</strong>ity matters when getting an idea of the "performance" of an economy.</p>

<p><hr>
Regarding your main question... The word "credit" as such, is used to describe the <em>scriptural</em> ex-nihilo creation of money by commercial banks (and its debt counterpart). When the credit is reimbursed, the money is <em>scripturally</em> destroyed.</p>

<p>Money demand, in contrast, can refer to any type of demand for money, be it stemming from final consumers, firms or even commercial banks themselves. Thus, money demand is conceptually a bigger <em>set</em> than that that we can associate to credits.</p>

CC BY-SA 4.0
2019-01-30T18:28:11.327Z
Any question @Fozoro ?
keepAlive
CC BY-SA 4.0
2019-01-30T19:15:37.847Z
Thanks for your answer, sorry for the late reply. I didn't quite understand the difference between credit and money demand
Fozoro
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2019-01-30T20:17:06.107Z
@Forozo. See update. Any question?
keepAlive
CC BY-SA 4.0
2019-01-30T18:16:38.023Z
2019-01-31T09:18:39.980Z
2019-01-31T09:18:39.980Z
keepAlive
<p>I'm not sure what's the nature of the question but:</p>

<ul>
<li>Credit isn't necessarily linked to money. It's linked to the fact that people desire to consume today rather than tomorrow. You can have credit, borrowing and an interest rate in a cashless economy.</li>
<li>Demand for money could be abstracted as an extra term in the utility function and/or a cash-in-advance restriction, meaning that the individual seeks to hold money because it makes them happy and allows him to pay for real goods. This, in turn, leads to demand for money.</li>
</ul>

CC BY-SA 4.0
2019-01-30T19:18:04.673Z
Thank you very much for your answer. So basically an increase in demand for money doesn't necessarily mean debt (As one could sell all his bonds in order to get money). None the less and increase in credit is equal to an increase in debt as you?
Fozoro
CC BY-SA 4.0
2019-02-08T17:42:46.823Z
I'd say yes, credit and debt should be the same.
one_teach_wonder
CC BY-SA 4.0
2019-01-30T17:44:55.540Z
2019-01-30T17:44:55.540Z
one_teach_wonder
<p>As far as I understand in both cases we are seeking money that we don't have and would like to borrow.</p>

<p>That being said what I find even more misleading is the fact that as a nominal interest rate increase credit increases.</p>

<p>If anyone could clarify this that would be absolutely amazing.</p>

<macroeconomics><money><credit>
difference between demand for money and credit
Fozoro
# difference between demand for money and credit

(Asked by: username_0 on 2019-01-30)

As far as I understand in both cases we are seeking money that we don't have and would like to borrow.

That being said what I find even more misleading is the fact that as a nominal interest rate increase credit increases.

If anyone could clarify this that would be absolutely amazing.

**Tags:** macroeconomics, money, credit

---

## 2 answers

### Answer by username_1 on 2019-01-30. Score: 0 | Accepted answer

> That being said what I find even more misleading is the fact that as a nominal interest rate increase credit increases.

This is the so-called [Fisher Effect](https://en.wikipedia.org/wiki/Fisher_hypothesis). You have to consider things upside down and, actually, the importance of money supply in the story.

"Credits" (here and there) stimulate demands (here and there) in the national economy. If supplies stay constant -- which it does empirically, at leasts temporarily --, markets will reach a new equilibrium via prices rising due to these stimulated demands, which generates inflation. Finally, higher inflation means higher nominal rates. Why? Because higher inflation (here and there) actually means higher (nominal) returns on equity (here and there). Incidentally, commercial banks (have to attract deposits and) will adjust their (saving) rates accordingly.

But remember that only **real**ity matters when getting an idea of the "performance" of an economy.

---

Regarding your main question... The word "credit" as such, is used to describe the *scriptural* ex-nihilo creation of money by commercial banks (and its debt counterpart). When the credit is reimbursed, the money is *scripturally* destroyed.

Money demand, in contrast, can refer to any type of demand for money, be it stemming from final consumers, firms or even commercial banks themselves. Thus, money demand is conceptually a bigger *set* than that that we can associate to credits.

> **Comments:**
> **username_1**: Any question @Fozoro ?  
> **username_0**: Thanks for your answer, sorry for the late reply. I didn't quite understand the difference between credit and money demand  
> **username_1**: @Forozo. See update. Any question?  

---

### Answer by username_2 on 2019-01-30. Score: 0

I'm not sure what's the nature of the question but:

* Credit isn't necessarily linked to money. It's linked to the fact that people desire to consume today rather than tomorrow. You can have credit, borrowing and an interest rate in a cashless economy.
* Demand for money could be abstracted as an extra term in the utility function and/or a cash-in-advance restriction, meaning that the individual seeks to hold money because it makes them happy and allows him to pay for real goods. This, in turn, leads to demand for money.

> **Comments:**
> **username_0**: Thank you very much for your answer. So basically an increase in demand for money doesn't necessarily mean debt (As one could sell all his bonds in order to get money). None the less and increase in credit is equal to an increase in debt as you?  
> **username_2**: I'd say yes, credit and debt should be the same.  

---

