Money and Interest

Money and Interest:

Keynes symbolized a monetary theory of interest. It is termed as the liquidity preference theory of interest. Interest, according to Keynes, is the payment for the utilization of money. The demand for money (i.e., liquidity preference) and the supply of money, find out the rate of interest. The essence of the Keynesian theory of liquidity first choice is that the quantity of money, all along with the state of liquidity preference examines the rate of interest.

Keynes made it apparent that interest is not the prize for savings as supposed by the classical writers. The rate of interest is the “prize for parting with liquidity for a time period”. In another words, the rate of interest is mainly determined by the attitude of the people to part with liquidity when their liquidity preference is very strong.

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