The Keynesian theory only explains interest in the short-run. Thus, in the money economy of the present world, the Keynesian theory is more realistic than the classical theory of interest. Keynes’s early-1900s economic theories had a huge impact on economic theory and the economic policies of global governments. 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. 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. According to Keynesian theory of interest rate, the interest rate is not given for the saving i.e. What Is Keynesian Economics? Keynes’s theory and policy before the General Theory Cambridge Keynes was, from his first contributions, a monetary economist. The Keynesian theory of interest is not only indeterminate, but is also an inadequate explanation of the determination of the rate of interest. 6. His later celebrations of Keynes theory of interest, like the classical and loanable funds theories, is indeterminate. 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. 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. 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. hoarding. The Keynesian theory deals only with the monetary factors, not the real factors. So, the interest rate solely depends on the demand and supply of money. British economist John Maynard Keynes is the father of modern macroeconomics, developing his own school of economic thought. It gives no clue to the rates of interest in the long run. Keynesian theory. Keynesian Economics is an economic theory of total spending in the economy and its effects on output and inflation developed by John Maynard Keynes. 2. It treats the interest rate as a purely monetary phenomenon and by neglecting the real factors makes the theory narrow and unrealistic. During times of recession (or “bust” cycles), the theory prompts governments to lower interest rates in a bid to encourage borrowing. This led John Maynard Keynes to write "The General Theory of Employment, Interest, and Money" in 1936, which played a large role in distinguishing … The interest rate according to Keynes is given for parting with liquidity for a particular period of time. 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