But: Interest Paid relative to the money we use to pay for things.
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1 comment:
Q: Why use the quantity of money, rather than income?
A: If you count income, you are depending on people to spend money (so that there can be income). When people are not spending, there is no income.
If you count money, you are looking at a number established (or at least guided) by policy. Now you are doing macro. And now you are counting something that people can spend without going more in debt to do it.
It is still true that people have to spend the money to generate income. But at least they don't have to get more in debt to do it.
Income relative to the quantity of money is velocity. Velocity is unstable. And I would argue that changes in velocity arise in response to changes in confidence, which arise largely from monetary conditions: how people are doing, how much money people have, whether it is increasing, etc.
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