Liquidity Preference and the Theory of Interest

  • D. C. Rowan


In Chapter 10 we developed a theory of investment and found that, given (i) the marginal efficiency of capital schedule adjusted for borrower’s risk, and (ii) the cost of borrowing, we could determine the equilibrium rate of real planned investment. Given the rate of real planned investment (determined in this way) we could then, from the schedule of the propensity to consume (itself derived from the consumption function) determine the equilibrium level of output and employment from the condition that, in equilibrium, planned saving must be equal to planned investment.


Interest Rate Money Supply Bond Price Speculative Demand Money Income 
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Suggested reading

  1. M. J. Artis and M. K. Lewis, Monetary Control in the United Kingdom (Philip Allan, 1981) ch. 2.Google Scholar
  2. G. E. J. Dennis, Monetary Economics (Longman, 1981) chs 4, 6.Google Scholar
  3. Miles Fleming, Monetary Theory (Macmillan, 1971).Google Scholar
  4. *H. G. Johnson (ed.), Readings in British Monetary Economics (Oxford University Press, 1972) pp. 138–50.Google Scholar
  5. J. M. Keynes, The General Theory of Employment, Interest and Money (Macmillan, 1936) ch. 15.Google Scholar
  6. A. M. Khusro, ‘An Investigation of Liquidity Preference’, Yorkshire Bulletin of Economic and Social Research (January 1952).Google Scholar
  7. *D. W. Laidler, The Demand for Money (Scranton, 1969).Google Scholar

Copyright information

© D. C. Rowan 1983

Authors and Affiliations

  • D. C. Rowan
    • 1
    • 2
  1. 1.University of SouthamptonUK
  2. 2.University of New South WalesSydneyAustralia

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