| Abstract | This paper aims to analyze M2/GDP systematically and comprehensively, including the factors that affect magnitude of M2/GDP, the way of analyzing international differences and longitudinal changes of M2/GDP, the dynamic evolvement path of M2/GDP and the relationship between M2/GDP and inflation. From the research, we find that many of the current explanations about M2/GDP are ambiguous. In contrast, the financing structure - saving rate framework we build based on money creation theory makes both better horizontal and better longitudinal explanation on the change of M2/GDP. As for an economy，the more it relies on bank financing and the higher saving rate it has, the higher M2/GDP it would generally has. This conclusion is not only rigorously supported by theoretical logic, but also supported by Panel Data Analysis on global major economies. This paper’s analytical framework could also longitudinally explain the reason of fluctuation in M2/GDP in China. In addition, the stable but slightly decreasing tendency of M2/GDP in China during 2003-2008 was related to the booming bank capital. The phenomenon above needs to be understood from the perspective of money creation. Moreover, this paper deduces dynamic path of M2/GDP which has Logistic Curve characteristics, based on Money Quantity Equation. Following this path, with a remarkable acceleration, M2/GDP in China will present a slowing tendency and gradually approach the upper limit after a turning point. The research also found that M2/GDP gap, instead of M2/GDP magnitude itself, has a closer relationship with inflation. So macroeconomic policy should ensure growth of monetary aggregates both steady and adequate, in order to maintain a suitable environment for economic growth and structural adjustment. |