JAIIB (Junior Associate of the Indian Institute of Bankers) aspirants, Modern Theory of Interest is essential for understanding how modern economies, including India, function within the global financial system. The Modern Theory of Interest provides an in-depth understanding of interest rate determination, incorporating factors such as liquidity preference, money supply, and macroeconomic stability. Learning Sessions presents this article on case study that delves into the Modern Theory of Interest, explores its relevance to India’s financial system, and presents a case study that highlights its application in the Indian context.
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DOWNLOAD PDF MODERN THEORY OF INTEREST -CASE STUDY
The key Elements of the Modern Theory of Interest are:
-Liquidity Preference
-Money Supply
-Equilibrium Interest Rate
The Modern Theory of Interest plays a key role in shaping India’s interest rate environment and monetary policy framework. The Reserve Bank of India (RBI) uses various tools, such as the repo rate, reverse repo rate, and open market operations, to control liquidity and manage interest rates in the economy. These tools are designed to stabilize inflation, encourage investment, and promote economic growth. For the extensive preparation of candidates, get details through our YouTube videos for JAIIB IE & IFS Module wise Syllabus with explanations and tips to help candidates in their preparation journey.
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The Modern Theory of Interest provides a more distinct understanding of interest rate determination. It has some limitations too, like this theory places heavy emphasis on the speculative demand for money, which may not always reflect actual economic conditions. The theory assumes a closed economy with limited external influence. Excessive monetary easing can lead to inflationary pressures, as seen in the post-pandemic recovery phase in India. Learning Sessions provides additional information about JAIIB IE & IFS INFRASTRUCTURE by giving examples of real life scenarios.
With all this in mind, The Modern Theory of Interest offers valuable insights into how interest rates are determined by the interaction of liquidity preference, money supply, and monetary policy. For JAIIB aspirants, considering the Modern Theory of Interest is essential for analyzing how the Indian financial system responds to economic collapse, inflationary pressures, and changes in liquidity.
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