The question sounds simple, yes. Ceteris paribus, when the supply of loanable funds increases, the interest rates drop (basically because supply increases while demand stays constant). Now merge this with the Austrian capital theory which says that as savings increases (which conversely means final…

John, I am not sure if that answers my question. Those two threads talk about the interest rate sensitiveness of projects. Yes, at lower interest rates longer term projects become more feasible. I kind of know that, I guess. For instance, a $10,000 investment that promises $10,302 at the end of thre…

You’ve used this term twice now…yet I have no idea what it means…what is a “roundabout method of production” and a “roundabout producer good”?

More roundabout method of production (or more roundabout producer good) = more time it takes to break-even on investments (made on the method of production/producer good). Does that make things clearer?

Profits are not the only that is in equilibrium in the ERE, so if people’s demand schedules suddenly shift, you need to explain what caused this. I don’t have time to go into depth answering your specific question so let me just give the very high-level view and hopefully you can work out your own…

This is standard Austrian terminology and Prashanth is using it correctly. Higher-order goods are defined as goods that require more roundabout methods of production. A consumer good is something that people directly consume. It is the first order good. The second order goods are those which are di…

Not really…I don’t understand why something simply having a longer production process makes it a more “roundabout” good. But I guess the nonsensical nature of the term is irrelevant for this discussion. Clayton pretty much answered your question (as far as I can tell.)

Ok. I think I need to get my question across first. I’ll try to explain it in a better way. Initial consumer allocation of income towards Consumption and Investment = $20 vs. $80. In this case, it would take four rounds of consumer spending of $20*4 to get $80 worth of returns. Lets say people now…

If we did not have central banks and we had a free market in banking. Would we have a centralized interest rate? Would not each bank independently set its own interest rate on savings and loans based on the product/service that the bank offers the specific individual? edit: What I mean is to say is…

You’re mixing incompatible methodologies. There are no “rounds” of investment/consumption in the ERE. Either you or we are completely misunderstanding the other. Why don’t you link to the specific passage you have a question about. In the meantime, take a look at this which explains Hayekian mean…

Why should an increase in savings cause lower interest rates?

Economics Economics Questions

John_James June 12, 2012, 12:35pm 2

Why does this feel like deja vu? Oh wait. That’s right.

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Why should an increase in savings cause lower interest rates?

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