In the Classical interest theory, saving and investment determine
A) the price level.
B) unemployment.
C) the money supply.
D) interest rates.

Question

Quizplus · Accepted Answer

In the Classical interest theory, saving and investment determine interest rates. This is because saving represents the supply of loanable funds, while investment represents the demand for loanable funds. As a result, the equilibrium interest rate is determined by the intersection of the saving and investment curves, and changes in either saving or investment will lead to changes in the interest rate.

In the Classical Interest Theory, Saving and Investment Determine