domingo, 13 de septiembre de 2009

Market evolution. Jorge de Lalama. General Theory of Employment, Interest and Money. Keynes. Chapter IV. Part IV.

The amount of money is another factor which combined with the liquidity preference determines the real rate of interest under certain circumstances.

Anyone who believes that future interest rates will be above the presumed by the market, has reason to conserve real hard cash, while the individual that differs from the market in the opposite direction will have reason to borrow money short term to buying longer-term debt.

An increase in the amount of money will have to reduce interest rates.

If employment increases when prices rise and production has increased and prices have risen, the effect of this on the preference for liquidity will increase the amount of money needed to maintain a given rate of interest.

A drop in spending will tend to lower the interest rate and an increase in investment to raise it.

Each set of circumstances and expectations of interest rate corresponds. The shift in interest rate is generally the most important part of the reaction to a changing news. Individuals are much more alike than different in their reactions to the news.

The money rate of interest is not simply the percentage of excess of a sum of money contracted for future delivery, for example, a year later, on what we might call the price immediately (spot) or cash in that sum.

National income will depend on the scale of employment.

The interest rate is collected by the state of liquidity preference and partly by the amount of money, measured in wage units.

Our independent variables include:

1) The three fundamental psychological factors, namely the psychological propensity to consume, the psychological attitude about liquidity and the psychological expectation of future performance of capital goods.

2) Unit of wages, as determined by agreements between employers and workers.

3) The amount of money, as set by the central bank action.

These variables determine the income (dividend) and the volume of occupation.

There will be an incentive to boost the rate of new investment to the point that forces the bid price of each class of capital asset to an amount which, together with its probable performance, approximately equals the marginal efficiency of capital in general with the rate interest. This means that the physical conditions of supply in the capital goods industries, the state of confidence about the likely performance, the psychological attitude about liquidity and the amount of money (preferably calculated in units of salary) determine, together, the new rate of investment.

But an increase (or decrease) the rate of investment will be accompanied by an increase (or decrease) the rate of consumption, because the conduct of the public is generally such as to only want to expand (or narrow) the gap between their income and consumption if the former is increasing (or decreasing). This means that changes in the rate of consumption, usually in the same direction (though smaller in magnitude) changes in the rate of income. The proportion of consumption growth, which necessarily accompanies a given increase in savings is determined by the marginal propensity to consume. The proportion, thus established between an increase in investment and corresponding global income, both measured in wage units, is given by the investment multiplier.

Finally, assuming that the multiplier of occupation is equal to investment, we can, applying the multiplier to the increase (or decrease) in the investment rate caused by the elements described above, to infer the growth of the occupation.

An increase (or decrease) of occupation may, however, to raise (or lower) curve and liquidity preference will tend to increase the demand for money in three ways, as the production value rises when the occupation grows even if the unit of wages and prices (in wage units) remain unchanged, but also the same unit wages tend to rise as employment improves, and the increase in production will be accompanied by a rising prices (in terms of unit wage) due to the increased cost in short periods.

Real phenomena of the economic system are also colored by some special features of the propensity to consume, the curve of marginal efficiency of capital and the interest rate.

The theory of business cycles with regular phases have been founded on the fact that fluctuations tend to exhaust themselves before they reach extreme results and eventually reverse. The same goes for prices that, in response to an initial cause of disturbance, seem able to find a level at which remain stable.

The hypothetical psychological propensities lead to a stable system, and then, if sensibly be attributed according to our general knowledge of contemporary human nature, the world we live.

The moderate alterations likely performance of the capital or in the interest rate will not cause big changes in the investment rate.

When a member change occupation, nominal wages tend to move in the same direction, but not very desproporcinada change of occupation.

Correinte consumption expands when employment grows, but less than the increase in real income.

The governments in periods of depression with progressive increase in unemployment will force the state to regularly provide help with borrowed funds. In this case an increase in investment, however small it may be, will initiate a growth of effective demand until it reaches the position of full employment, while a decrease of those souls a cumulative decline of effective demand until no one had jobs.

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