Long-term Bonds, Capital Gains and Liquidity Preference

  • Wynne Godley
  • Marc Lavoie


The definition of wealth in Model PC in Chapter 4 comprised only two assets, money and bills. In this chapter a third asset, long-term government bonds, is introduced and this will provide an opportunity to discuss the notion of liquidity preference — hence the name Model LP — and also to introduce capital gains and losses into the system of accounts. An important feature of the new model will be that an increase in long-term interest rates will have a short-run negative effect on demand.


Interest Rate Central Bank Disposable Income Capital Gain Monetary Authority 
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Copyright information

© Wynne Godley and Marc Lavoie 2012

Authors and Affiliations

  • Wynne Godley
    • 1
  • Marc Lavoie
    • 2
  1. 1.King’s CollegeCambridge UniversityCambridgeUK
  2. 2.Department of EconomicsUniversity of OttawaCanada

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