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Definition of 'Gibson's Paradox'
An economic observation made by J. M. Keynes during the period of the gold standard that there is a correlation between interest rates and the general price level. Keynes' finding, which he discusses in "A Treatise on Money" (1930), is a paradox because it is contrary to the view generally held by economists at the time, which was that interest rates were correlated to the rate of inflation.
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Investopedia explains 'Gibson's Paradox'
In Keynes' research, interest rates were highly correlated to wholesale prices but had little correlation to the rate of inflation. In this paradox, interest rate movements are connected to the level of prices, not the rate of change in prices.
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Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
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It's a part of everyone's life, and we all want it, but do you know how it gains value and how it is created?
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Get a deeper understanding of the importance of interest rates and what makes them change.
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By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
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As a measure of inflation, this index can help you make key financial decisions.
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