The classical theory of the rate of interest

Economists like Ricardo, J. S. Mill, Marshall, and Pigou developed the classical theory of interest which is also known as the capital theory of interest, the saving-investment theory of interest, or the real theory of interest. In the classical theory, the equilibrium rate of interest is the one that equals the supply of loanable funds…

Impact of Inflation on the Economy

In an inflationary atmosphere, unevenly rising prices inescapably reduce the purchasing power of some consumers, which can lead to erosion of real income. Some people, who purely live on interest income such as retirees, may find it challenging to keep up with rising prices, potentially diminishing their purchasing power. When prices rise, each unit of…

What are the causes of inflation?

Inflation is caused by a variety of causes such as increase in wages, increase in the price of raw materials, increase in taxes, decline in productivity, supply chain disruptions, rising fuel prices, increase in money supply etc.  The main causes of inflation can be grouped into three broad categories viz. Demand-pull inflation, Cost-push inflation, and…