As such the modern theory of interest is much more comprehensive than the Keynesian theory of interest. So, the interest rate solely depends on the demand and supply of money. Keynes’s early-1900s economic theories had a huge impact on economic theory and the economic policies of global governments. British economist John Maynard Keynes is the father of modern macroeconomics, developing his own school of economic thought. 2. 6. It treats the interest rate as a purely monetary phenomenon and by neglecting the real factors makes the theory narrow and unrealistic. The Keynesian theory of interest is not only indeterminate, but is also an inadequate explanation of the determination of the rate of interest. During times of recession (or “bust” cycles), the theory prompts governments to lower interest rates in a bid to encourage borrowing. Keynesian Economic Theory also prompts central and commercial banks to accumulate cash reserves off the back of interest rate hikes in order to prepare for future recessions. Keynesian theory was introduced with the book "The General Theory of Employment, Interest, and Money" The marginal propensity to consume is-the slope of the consumption function Incorrect-the change in consumption divided by the change in income. It gives no clue to the rates of interest in the long run. The modern theory of Interest is certainly an improvement over the Keynesian theory of interest because it deals with both the real and monetary factors. His later celebrations of Thus, in the money economy of the present world, the Keynesian theory is more realistic than the classical theory of interest. Keynes’s theory and policy before the General Theory Cambridge Keynes was, from his first contributions, a monetary economist. Keynesian economics argues that the driving force of an economy is aggregate … Keynesian Economics is an economic theory of total spending in the economy and its effects on output and inflation developed by John Maynard Keynes. The interest rate according to Keynes is given for parting with liquidity for a particular period of time. It is important to highlight that Keynesian approach is superior to the classical hypothesis of interest since the former is troubled with equilibrium in the physical sector. What Is Keynesian Economics? Theory, a theory of money as a store of value provided the fundamental break with classical analysis, and was genuinely a revolution in economic thought. This led John Maynard Keynes to write "The General Theory of Employment, Interest, and Money" in 1936, which played a large role in distinguishing … Keynesian economics, body of ideas set forth by John Maynard Keynes in his General Theory of Employment, Interest and Money (1935–36) and other works, intended to provide a theoretical basis for government full-employment policies. The Keynesian theory only explains interest in the short-run. Keynes theory of interest, like the classical and loanable funds theories, is indeterminate. The Keynesian theory deals only with the monetary factors, not the real factors. According to Keynesian theory of interest rate, the interest rate is not given for the saving i.e. hoarding. Keynesian theory. , from his first contributions, a monetary economist the theory narrow and unrealistic impact on economic and. The General theory Cambridge keynes was, from his first contributions, a monetary economist the rates of is! 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