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Keynes' Theory of the Interest Rate: A Critical Approach

Author

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  • Katarzyna Appelt

    (University of Poznan)

Abstract

John M. Keynes – the author of General Theory of Employment, Interest and Money – assumed that the interest rate is the price which brings into equilibrium the desire to hold wealth in cash with the supply of cash resources, and the reward for parting with liquidity at the same time. He indicated liquidity preference as the key element of the theory of the demand for money, whereas the supply of money is a discretionary factor, i.e. depending on the policy pursued by monetary authorities. It has been proven that such an approach comes with at least three errors: inconsistency in defining the rate of interest, vicious circle in arguing and departure from the economics of value for functional adequacies.

Suggested Citation

  • Katarzyna Appelt, 2016. "Keynes' Theory of the Interest Rate: A Critical Approach," Theory Methodology Practice (TMP), Faculty of Economics, University of Miskolc, vol. 12(01), pages 3-8.
    • Handle: RePEc:mic:tmpjrn:v:12:y:2016:i:01:p:3-8
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    File URL: http://tmp.gtk.uni-miskolc.hu/volumes/2016/01/TMP_2016_01_01.pdf
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    Cited by:

    1. Okey O. Ovat & Rimamtanung Nyiputen Ishaku & Malachy Ashywel Ugbaka & Eugene Okoi Ifere, 2022. "Monetary Policy Rate and Economic Growth in Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 12(3), pages 53-59, May.
    2. Lartey, Lawrencia, 2018. "The Signalling Effect of Monetary Policy Rate on Lending Rates in Ghana," MPRA Paper 92244, University Library of Munich, Germany.
    3. Abeti, Wilson, 2020. "The State of Ghana's Economy: A Comparative Analysis," MPRA Paper 102131, University Library of Munich, Germany.

    More about this item

    Keywords

    interest rate; liquidity preference; demand for money; classical school; Keynes;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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