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THEORIES OF INTEREST PART 1
What is the classical theory of interest?
The classical theory holds that interest is determined by the supply of savings and the demand for investment, where the rate adjusts to equate the two in a free market.
What is the neo-classical theory of interest?
Interest is price paid for use of capital, equilibrating saving and investment.
According to the classical economists, what is interest a reward for?
Classical economists viewed interest as a reward for 'waiting' or 'abstinence' — forgoing present consumption to make funds available for productive investment.
What does the 'roundabout production' concept in Böhm-Bawerk's theory refer to?
Using capital-intensive indirect methods to increase future output and productivity.
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