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<!doctype html><html class=html lang=en-us dir=ltr><head><meta charset=utf-8><meta name=viewport content="width=device-width"><title>Unit 12 | Freedoms4</title><link rel=stylesheet href=/css/style.min.34d0accb85f8ec23ceee8c29eef5907823b531d8acb9e6bdf45a3b37ad028d30.css integrity="sha256-NNCsy4X47CPO7owp7vWQeCO1Mdisuea99Fo7N60CjTA=" crossorigin=anonymous><link rel=icon href=/favicon.ico><meta name=description content=" May 25, 2026 # Definitions # Interest # The payment or reward given for borrowing money or using capital for a specific period of time.
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Gross Interest # The total amount paid by the borrower to the lender for using borrowed money before deducting taxes, service charges, or other expenses.
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Net Interest # The actual or pure interest earned or paid after excluding additional charges such as risk, management costs, and inconvenience."><meta property="og:url" content="https://freedoms4.org/uninotes/s1/et-dcm1107/unit12/self/"><meta property="og:site_name" content="Freedoms4"><meta property="og:title" content="Unit 12"><meta property="og:description" content="May 25, 2026 # Definitions # Interest # The payment or reward given for borrowing money or using capital for a specific period of time.
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Gross Interest # The total amount paid by the borrower to the lender for using borrowed money before deducting taxes, service charges, or other expenses.
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Net Interest # The actual or pure interest earned or paid after excluding additional charges such as risk, management costs, and inconvenience."><meta property="og:locale" content="en_us"><meta property="og:type" content="article"><meta property="article:section" content="uninotes"><meta itemprop=name content="Unit 12"><meta itemprop=description content="May 25, 2026 # Definitions # Interest # The payment or reward given for borrowing money or using capital for a specific period of time.
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Gross Interest # The total amount paid by the borrower to the lender for using borrowed money before deducting taxes, service charges, or other expenses.
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› <a href=/uninotes/s1/et-dcm1107/unit12/>Unit 12</a>
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› <span>Self</span></nav><div class=uninotes-meta><span class=uninotes-meta__pill>S1</span>
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<span class=uninotes-meta__pill>ET DCM1107</span>
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<span class="uninotes-meta__pill uninotes-meta__pill--self">Self</span></div><h1>Unit 12</h1><details class=toc><summary class=toc__summary>Table of Contents</summary><nav id=TableOfContents><ul><li><ul><li><a href=#may-25-2026><em><strong>May 25, 2026</strong></em></a></li></ul></li><li><a href=#definitions>Definitions</a><ul><li><a href=#interest>Interest</a></li><li><a href=#gross-interest>Gross Interest</a></li><li><a href=#net-interest>Net Interest</a></li><li><a href=#nominal-rate-of-interest>Nominal Rate of Interest</a></li><li><a href=#real-rate-of-interest>Real Rate of Interest</a></li><li><a href=#liquidity>Liquidity</a></li></ul></li><li><a href=#theories-of-interest>Theories of Interest</a></li></ul></nav></details><h3 class=heading id=may-25-2026><em><strong>May 25, 2026</strong></em><span class=heading__anchor> <a href=#may-25-2026>#</a></span></h3><h2 class=heading id=definitions>Definitions<span class=heading__anchor> <a href=#definitions>#</a></span></h2><h3 class=heading id=interest>Interest<span class=heading__anchor> <a href=#interest>#</a></span></h3><p>The payment or reward given for borrowing money or using capital for a specific period of time.</p><h3 class=heading id=gross-interest>Gross Interest<span class=heading__anchor> <a href=#gross-interest>#</a></span></h3><p>The total amount paid by the borrower to the lender for using borrowed money before deducting taxes, service charges, or other expenses.</p><h3 class=heading id=net-interest>Net Interest<span class=heading__anchor> <a href=#net-interest>#</a></span></h3><p>The actual or pure interest earned or paid after excluding additional charges such as risk, management costs, and inconvenience.</p><h3 class=heading id=nominal-rate-of-interest>Nominal Rate of Interest<span class=heading__anchor> <a href=#nominal-rate-of-interest>#</a></span></h3><p>The stated rate of return on a loan or investment without considering the effect of inflation.</p><h3 class=heading id=real-rate-of-interest>Real Rate of Interest<span class=heading__anchor> <a href=#real-rate-of-interest>#</a></span></h3><p>The actual rate of return after adjusting the nominal interest rate for inflation, reflecting the true purchasing power of money.</p><h3 class=heading id=liquidity>Liquidity<span class=heading__anchor> <a href=#liquidity>#</a></span></h3><p>The ease or availability with which cash or assets can be converted into ready money for immediate use.</p><h2 class=heading id=theories-of-interest>Theories of Interest<span class=heading__anchor> <a href=#theories-of-interest>#</a></span></h2><div class=table-wrapper><table><thead><tr><th>Theory of Interest</th><th>Economist(s)</th><th>Short Summary</th></tr></thead><tbody><tr><td><strong>Abstinence Theory of Interest</strong></td><td><strong>Nassau William Senior</strong></td><td>Interest is the reward paid to people who abstain from present consumption and save money for productive use.</td></tr><tr><td><strong>Bohm-Bawerk’s (Agio) Theory of Interest</strong></td><td><strong>Eugen von Böhm-Bawerk</strong> (developed from John Rae’s ideas)</td><td>Interest arises because people value present goods more highly than future goods; therefore, compensation is needed for postponing consumption.</td></tr><tr><td><strong>Fisher’s Time Preference Theory</strong></td><td><strong>Irving Fisher</strong></td><td>Interest is the “price of time,” determined by people’s preference for present consumption over future consumption and investment opportunities.</td></tr><tr><td><strong>Loanable Funds Theory</strong></td><td><strong>Knut Wicksell, Bertil Ohlin, Dennis Robertson</strong></td><td>Interest is determined by the demand and supply of loanable funds, including savings, investment, bank credit, and hoarding.</td></tr><tr><td><strong>Liquidity Preference Theory</strong></td><td><strong>John Maynard Keynes</strong></td><td>Interest is the reward for parting with liquidity; it is determined by the demand for and supply of money.</td></tr></tbody></table></div><nav class=page-nav><a class=page-nav__previous-link href=/uninotes/s1/et-dcm1107/unit7/>← Unit 7</a></nav></main><footer class=footer><p class=footer__copyright-notice>© <a href=https://freedoms4.org>freedoms4.org</a> <a href=/changelog/>Changelog</a></p><p class=footer__theme-info>Built with <a href=https://gohugo.io>Hugo</a> and based on <a href=https://github.com/CyrusYip/hugo-theme-yue>Yue</a> theme</p></footer><script>(function(){document.querySelectorAll(".menu__item").forEach(function(e){var t=e.querySelector("a");t&&t.getAttribute("href")==="/uninotes/"&&e.classList.add("menu__item--uninotes")})})()</script><script>(function(){var e=document.getElementById("theme-toggle");if(!e)return;function t(){var e=localStorage.getItem("theme");return e?e:window.matchMedia("(prefers-color-scheme: light)").matches?"light":"dark"}function 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