According to Classical interest rate theory, which of the following will increase the equilibrium interest rate?
A) An increase in investment
B) An increase in saving
C) An increase in real output
D) A decrease in real output

Question

Quizplus · Accepted Answer

According to Classical interest rate theory, an increase in saving will increase the supply of loanable funds, which will lead to a decrease in the equilibrium interest rate. Therefore, the opposite, a decrease in saving, will increase the equilibrium interest rate. None of the other choices directly affect the supply or demand of loanable funds and therefore will not impact the equilibrium interest rate.

According to Classical Interest Rate Theory, Which of the Following