The Classical theory of interest assumes that interest rates are the principal determinant of the quantity of savings and that the demand for borrowed funds comes primarily from consumers and government.

Question

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The Classical theory of interest, primarily associated with economists like Irving Fisher, posits that interest rates are determined by the supply of savings and the demand for investment funds, not primarily from consumers and government but from businesses looking to invest in capital goods.

The Classical Theory of Interest Assumes That Interest Rates Are