Theories of Interest
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Indian Economy and Indian Financial System — JAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
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.
What does 'liquidity preference' mean in Keynesian theory?
Liquidity preference refers to the desire of people to hold their wealth in the form of liquid money 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 or postponing consumption over time.
What are the three motives for holding money according to Keynes?
Keynes identified the transaction motive (day-to-day expenses), the precautionary motive (unforeseen contingencies), and the speculative motive (to take advantage of future changes in interest rates).
What is the productivity theory of interest?
Interest arises because capital is productive and generates surplus.
Video classes for this chapter
More chapters in Module B - Economic Concepts Related to Banking
Master the full IEIFS syllabus
Every chapter of Indian Economy and Indian Financial System — videos, tests, notes and one-liner decks in one place.