In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will:
A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease, depending on whether consumption is greater or less than investment.

Question

Quizplus · Accepted Answer

In the classical model with fixed income, if the demand for goods and services is less than the supply, there will be a surplus of goods and services, leading to lower prices. This will lead to a decrease in the demand for money and a decrease in the interest rate. Therefore, the correct answer is option B, decrease.

In the Classical Model with Fixed Income, If the Demand