Theories of Interest
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for VIDEO LECTURES OF ASHISH SIR (FOR ALL SCALES) — Bank Promotions.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
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.
What is 'liquidity preference' according to Keynes?
Liquidity preference is the desire of individuals to hold wealth in the form of liquid cash rather than interest-bearing assets, driven by transaction, precautionary, and speculative motives.
What is the Waiting Theory of Interest proposed by Marshall?
Interest is reward for waiting and deferring present consumption.
What are the three motives for holding money under Keynes's Liquidity Preference Theory?
The three motives are the transaction motive (day-to-day expenses), the precautionary motive (contingencies), and the speculative motive (taking advantage of future changes in interest rates).
According to the Classical Theory, what two forces determine the interest rate?
Saving (supply of capital) and investment (demand for capital).
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