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| Two Queries about Mankiw's Market Theory of Loanable Funds |
| LIU Qun |
| College of Economics, Shenzhen University, Shenzhen, Guangdong, 518060 |
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Abstract For a long time, a false theory is prevalent in the teaching of economics in Chinese universities. This theory originating from western economics should be examined and modified. In Mankiw’s Principles of Economics, the supply curve of loanable funds slopes upward. This argument takes what happens in an individual bank for an economic phenomenon in the entire banking system. It ignores the change of the relationship between deposit and loan in the banking system, and the conversion between base money savings and derived savings. Besides, it does not recognize the fact that credit currency never automatically withdraws from circulation. Therefore the argument is a pointless and unrealistic inference. Mankiw’s textbook compares commodity circulation to currency circulation. This proposition ignores the limitation of commodity circulation, and disregards the fact that currency circulation is unlimited. The theory violates basic principles of currency circulation, confuses commodity circulation with currency circulation. As an economics textbook, these two points have negative impact upon students.
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Received: 21 November 2015
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2016, Vol. 33 
