According to classical theory, desired saving always equals investment due to changes in
A) prices.
B) wages.
C) the interest rate.
D) taxes.

Question

Quizplus · Accepted Answer

According to classical theory, desired saving always equals investment due to changes in the interest rate. This is because changes in the interest rate affect the cost of borrowing and the return on investment, thus influencing the decisions of savers and investors. If the interest rate is high, savers are incentivized to save more as they will receive a higher return on their savings, while investors are discouraged from borrowing and investing as the cost of borrowing is high. On the other hand, if the interest rate is low, savers are incentivized to spend more as the return on their savings is low, while investors are incentivized to borrow and invest as the cost of borrowing is low. As a result, in classical theory, changes in the interest rate equilibrate desired saving and investment.

According to Classical Theory, Desired Saving Always Equals Investment Due