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Theories of Interest
What is the classical theory of interest?
The classical theory holds that the rate of interest is determined by the supply of and demand for savings (loanable funds), where saving represents the supply and investment represents the demand.
What is the abstinence theory of interest?
Interest is reward for abstaining from current consumption.
Who is associated with the liquidity preference theory of interest?
John Maynard Keynes developed the liquidity preference theory, which states that the rate of interest is determined by the demand for and supply of money (liquidity).
Who propounded the abstinence theory of interest?
Nassau Senior propounded the abstinence theory of interest.
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