Credit cards and interest rates: theory and institutional factors

Keynesian economics emphasizes that money demand will fall as credit card users economize on transactions balances. This perspective overlooks the fact that credit card use is an increase in credit demand. Loanable funds analysis, along with an emphasis on institutional arrangements, can be utilized to demonstrate that this increase in credit demand is greater than the increase in credit supply associated with a decline in money demand. Any resulting upward pressure on interest rates will encourage an accommodative Federal Reserve policy.