Page:Indian Journal of Economics Volume 2.djvu/103

 rNTERE$T ND DZ$OOUNT 91 but such an influx may well be counteracted by a fattening of the cylinder, i.e., by an increase in the volume of trade. But what will be the effect of a flow of water through the pipe from C to B? Nor- mally, when no other forces are at work, the twist exerted on DE by the weight W will be transmit- ted to the string T, so that the pull on both strings will be equal; i.e., the rate of discount will be equal to the rste of interest. from C to B it will act on But when water flows the turbine inside the pipe and exert a twist on DE in the direction E F, that is, it will help to bear the pull of W; or, in other words, the strain on T will be lessened, and the rate of discount lowered. When once th water ha passed into A and tl flow has ceased, O will be s little higher than. before, and W a little lower, but the pull on T will once again be equal to the pull money-market we may flowing into s country exerted by W. Translating into the language of the say then, that while gold is the rae of discount will be flow of gold has stopped, level of Similarly when water flows out of the cylinder it will act on the turbine in such a way as to twist DE in the direction FE and will thus increase the tension on T. thereby reduced. Once the however, the rate of discount will again equal to the rate of interest, though the prices may have been permanently raised, In other words gold flowing out qf a country will temporarily tend to raise the rate of discount, But once the flow has ceased equilibrium between the the rate of discount and be established: rae .of. interest will again