This for education purpose.

1. Neo-Classical Theory of Interest
or
Loanable Fund Theory of Interest
PRESENTED BY – RITIKA KATOCH

2. Loanable Fund Theory of Interest
• Loanable Theory of Interest was first given by Knut Wicksell & then
later on it was explained by Pigou and other economist.
• According to this theory, rate of Interest is determined by loanable
fund.

3. What is Loanable fund?
Loanable Fund
Demand for Loanable
fund
Supply for Loanable
fund
• Prof. Robertson :- Interest is the price which equates the Demand
Loanable Fund & Supply Loanable Fund.

4. Demand For Loanable Fund
• Investment (capital formation)
• Consumption or Dissaving
• Hoarding
In Equation,
DLF = I + C + H

5. Supply for Loanable Fund
• Saving
• Bank – Credit
• Dishoarding
• Dis-Investment
In Equation,
SLF = S + B + D.H + D.I

6. Determination of Equilibrium of Interest
Rate

7. Determination of Interest in Equation
Form
DLF = SLF
I + C + H = S + B + DH + DI
(I - DI) + (H - DH) = S + B + C
Net Investment + Net Hoarding = Net saving + Bank Credit

8. Criticism
• Full Employment
• Indeterminate
• Impracticable

9. Thank You.