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Interest Rate Determination

Interest Rate Determination. Classical Theory Marginal Efficiency of Capital (MEI) – Supply of Funds –. Interest Rate Determination. Classical Theory (cont.) Market Equilibrium Disequilibrium Conditions. Interest Rate Determination. Limitation of the Classical Theory

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Interest Rate Determination

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  1. Interest Rate Determination • Classical Theory • Marginal Efficiency of Capital (MEI) – • Supply of Funds –

  2. Interest Rate Determination • Classical Theory (cont.) • Market Equilibrium • Disequilibrium Conditions

  3. Interest Rate Determination • Limitation of the Classical Theory • Loanable Funds Approach –

  4. Interest Rate Determination • Demandors of Funds • Suppliers of Funds

  5. Interest Rate Determination • Loanable Funds Examples:

  6. The Monetarist View of Interest Rates • The Old Quantity Theory • The Classical Quantity Theory

  7. The Monetarist View of Interest Rates • The Modern Quantity Theory • Changes in the Money Supply have 3 effects:

  8. Neo-Keynesian Model • Interest rates are dependent upon… • Transaction Demand – • Speculative Demand – • Examples: • Increasing the money supply  • Decreasing the money supply 

  9. Sources of Risk • Risks Associated with Mortgage Investing

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