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Francisco Morazan Travel on The inflationary spiral that a lower bank rate brings with it is important in understanding the link between the rate of interest and the prices of goods. If the bank rate remains stationary or is slow to move while the natural rate changes—a change in the demand and supply of saving and capital—the dynamics of the price changes will likewise occur. From Wicksell, John Maynard KEYNES (1936) developed a theory of capital still widely accepted today. Keynes’s theory is founded on the marginal efficiency of capital, which determines the demand for capital. Keynes clearly took the neoclassical approach to capital. The marginal efficiency of capital is assumed to be diminishing because of expected diminishing returns on future investments. The intersection of the marginal efficiency of capital and the supply of saving then determine the rate of interest. Francisco Morazan Travel 2016.