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The Rate of Interest

In: Introduction to Macro-Economics: A Workbook

Author

Listed:
  • J. Harvey

    (University of Reading)

  • M. Johnson

    (Hatfield Polytechnic)

Abstract

The Classical economists held that the rate of interest was a price which brought into equilibrium the demand for investment funds and the supply of savings. These are two ‘real’ flows: investment represents the resources which firms wish to use for producing goods which will not be consumed currently by households; saving represents resources which households are prepared to devote for future, as opposed to current, consumption. Furthermore, since money was wanted only for transactions purposes and since the economy was always fully employed, the effect of any change in the supply of money was directly on the price level.

Suggested Citation

  • J. Harvey & M. Johnson, 1973. "The Rate of Interest," Palgrave Macmillan Books, in: Introduction to Macro-Economics: A Workbook, chapter 10, pages 55-59, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-01871-0_10
    DOI: 10.1007/978-1-349-01871-0_10
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    Cited by:

    1. Michael P. Dooley & Peter Isard, 1979. "The portfolio-balance model of exchange rates," International Finance Discussion Papers 141, Board of Governors of the Federal Reserve System (U.S.).
    2. Smith, Matthew, 2018. "Demand-Led Growth Theory in a Classical Framework: Its Superiority, Its Limitations, and Its Explanatory Power," Centro Sraffa Working Papers CSWP29, Centro di Ricerche e Documentazione "Piero Sraffa".

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