Abstract
The present model - relates money to capital and economic growth- advances the ISLM-AS approach- captures macroeconomic policy concepts - combines the business with the credit cycleCapital-based credit cycle analysis links business activity to economic growth and closes the gap between the short and the long run. This approach reinstates capital as a crucial variable of macroeconomics. Capital connects the neoclassical growth theory with money in a model derived from the equation exchange. Based on a strict distinction between the monetary and the real variables, the capital-based credit cycle model provides a tool for identifying the various stages of the business cycle in its relation to liquidity, savings and capital accumulation. As a device for teaching and research, the model offers a consistent analytical framework that will serve as a complement to the standard models of macroeconomics.
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