FREE Registration for Economics online tutoring and homework help.

Present Value Prices and the Real Rate of Interest Video Tutorial

Present Value Prices and the Real Rate of Interest: Philosophers and theologians have railed against interest for thousands of years. But that is because they didn’t understand what causes interest. Irving Fisher built a model of financial equilibrium on top of general equilibrium (GE) by introducing time and assets into the GE model. He saw that trade between apples today and apples next year is completely analogous to trade between apples and oranges today. Similarly he saw that in a world without uncertainty, assets like stocks and bonds are significant only for the dividends they pay in the future, just like an endowment of multiple goods. With these insights Fisher was able to show that he could solve his model of financial equilibrium for interest rates, present value prices, asset prices, and allocations with precisely the same techniques we used to solve for general equilibrium. He concluded that the real rate of interest is a relative price, and just like any other relative price, is determined by market participants’ preferences and endowments, an insight that runs counter to the intuitions held by philosophers throughout much of human history. His theory did not explain the nominal rate of interest or inflation, but only their ratio.

Please click on the Like button if you liked this video.

Present Value Prices and the Real Rate of Interest - Video Lessons, Tutorials, Ebooks

At, get access to free study material for Economics in the form of video lessons, tutorials and downloadable ebooks. Not only that; you can get Free Homework Help to get solutions to Economics problems you're stuck with.

We also bring to you interesting stuff like text-books and CD's recommended by teachers and other students that you can buy from trusted online stores to get an extra edge to do well in Economics and other subjects.

Need help with Economics? Get an online Economics tutor to help you with and other areas of .

Register for our online Economics tutoring program to get homework help, help with test preparation and learn from experts to perform well in academics. SchoolTrainer specializes in tutoring for Economics. Our highly qualified Economics tutors can help you with Present Value Prices and the Real Rate of Interest, other Economics homework problems, test preparation and clarification of concepts.

More Free Study Material