Small Incentive and Big Economic Fluctuation

This thesis researches the relationship among money supply, money output, price fluctuation, basing on the enterprise motivation model, by using statistics of China from 1985 to 2008. Empirical study find the following results: If China's money supply stock follow. i.i.d ( independent identically distributed), the inflation rate and output volatility will be random; when China's economic grows rapidly it must be accompanied by great money supply shocks in a long term which will make inflation rate go even higher. This means to fundamentally avoid the high inflation rate when money supply shocks makes the output a upswing, it will be little returns if only use money policy. China's decision maker should pay more attention on improve workforce flexibility in order to maintain the sustained, rapid and steady development of the national economy.