Abstract
There are two general approaches to interest rate determination--Liquidity Preference and Loanable Funds. The standard textbook treatment usually presents these two approaches as if they were two ways of doing the same thing. Textbook authors then switch back and forth between the two approaches depending on which seems better suited for the problem at hand. We argue in this paper that the choice between these two approaches does matter. You simply can’t have it both ways—either the interest rate is determined in the money market or in the loanable funds market, but not both.
Recommended Citation
Fields, T. Windsor and Hart, William R.
(2003)
"What We Should (Not) Teach Students About Interest Rate Determination,"
Journal of Economics and Finance Education: Vol. 2:
Iss.
2, Article 2.
Available at:
https://scholarship.rollins.edu/jefe/vol2/iss2/2
