(Herman Heinrich Gossen 1810-1858) Lliquidity theory explains the interest rate on the role of money (demand and supply). MODERN THEORY OF INTEREST: HICKS-HANSEN SYNTHESIS We have discussed above the various theories of the rate of interest put forward from time to lime. Hicks-Hansen's, IS-IM curves model seeks to explain a case of joint determination of equilibrium rate of interest (r) and equilibrium level of income (y). But this wonky debate has now spilled over into the policy world, and there are politicians who seem to be falling under the lure that deficits don’t matter. The Modern Theory of Interest is designated as IS-LM Curves Model. “Modern Monetary Theory” (or MMT) is a new approach to monetary policy that advocates argue justifies massive government spending programs, including “Medicare for All” and the “Green New Deal.”But what is MMT, exactly?The core proposition of MMT is that a government that issues its own currency can always fund itself with that currency. Benefits of Modern Portfolio Theory (MPT) MPT is a useful tool for investors trying to build diversified portfolios. Modern economic theory tends to separate itself from classical economic theory by looking at more than just the source of production and the invisible hand theory. The Classical Theory Of Interest Rate. Interest theory in the twentieth century Irving Fisher, Frank Fetter, Keynesians, modern quantitativists or monetarists (Milton Friedman), Austrians (Ludwig von … Modern Monetary Theory, or MMT, has been a hot topic of late. This theory posits that an organization is the system that changes with the change in its environment, both internal and external. Theory of Austrian School explains the interest rate the law of marginal utility of goods. There’s nothing new about “modern monetary theory.”And, actually, a lot of it is true. This heterodox theory, which proposes a rethinking of how public finance works, has few fans among academic economists. But we have seen that all these theories suffer from various drawbacks and are indeterminate. 8.5 Neo-Keynesian Theory of Interest or Hicks IS – LM Curve or Modern Theory of Interest Classical economists determined the rate of interest with the help of the saving and The term structure of interest rate can be defined as the graphical representation that depicts the relationship between interest rates (or yields on a bond) and a range of different maturities. As the classical thesis, rate of interest is ascertained by the supply of and demand for capital. It is incompatible with much of Keynes’s “The General Theory of Employment, Interest and Money.” It was designed for a fixed-exchange rate regime, and it … ... #1 – The Expectations Theory/Pure Expectations Theory. 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