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Theories of Interest
What does the Classical Theory of Interest state about the determination of interest rate?
The Classical Theory states that interest rate is determined by the demand for and supply of loanable funds, where savings (supply) equal investment (demand) at equilibrium.
What is the Abstinence Theory of Interest?
Interest is a reward for abstaining from current consumption.
Who propounded the Liquidity Preference Theory of Interest?
John Maynard Keynes propounded the Liquidity Preference Theory, arguing that interest rate is determined by the demand for and supply of money, not loanable funds.
Who proposed the Abstinence Theory of Interest?
Senior Nassau proposed the abstinence theory of interest.
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