In the Classical model, an increase in saving will result in saving being __________ than investment which will cause the interest rate to __________.
A) greater; rise
B) greater; fall
C) less; rise
D) less; fall

Question

Quizplus · Accepted Answer

In the Classical model, an increase in saving leads to an excess of saving over investment, which puts downward pressure on the interest rate, causing it to fall. This adjustment process ensures that the market returns to equilibrium where saving equals investment.

In the Classical Model, an Increase in Saving Will Result