(This article elucidates Keynes’ Liquidity Preference Theory of Rate of Interest, Money Demand Determination of Rate of Interest: Equilibrium in the Money Market, Effect of an Increase in the Money in Money Demand or Liquidity Preference Curve, The Liquidity Preference Theory, proposed by John Maynard Keynes, explains interest rate determination based on people’s preference for…
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…
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…
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…
We know that when demand and supply curves shift, prices adjust to maintain a balance between the quantity of a good demanded and the quantity supplied. However, if prices did not adjust to changes in demand and supply quantity, this balance could not be maintained. Under the circumstances that shift the demand curve or the…
Supply is defined as the specific product available to the market for consumption. Demand is the amount of a specific product a consumer can purchase at each price. The supply and demand are deeply correlated. These two concepts of supply and demand are tangled to create market equilibrium which defines the availability of goods in…
Equilibrium is the state in which market supply and demand balance each other, and prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand. When the quantity demand exceeds the quantity supplied,…
Demand schedules and Demand curves are tools used to summarize the relationship between quantity demanded and price. Demand schedules/ curves relate the prices and quantities demanded assuming other factors remain constant. This is called the ceteris paribus assumption. If you neither need nor want something, you will not buy it. So the demand schedule reflects…
Bank customers can now withdraw cash from ATMs without using physical cards. Even if you do not hold debit cards from your bank, still you can easily use this facility to withdraw money. Multiple banks in India have introduced interoperable cardless cash withdrawal (ICCW) enabled ATMs. The cash withdrawal transaction will be facilitated through a…
We may observe 4 types of economic planning by the Governments of different parts of the world. They are Planning by Direction and Inducement, Physical and Financial Planning, Imperative and Indicative Planning, Fixed & Rolling Plans, and Decentralized and Centralized Planning These economic systems practiced through economic planning can be classified as Traditional Economies, command…