The classical economists assumed that savings leakages from the spending stream:
A) equal zero because people are too poor to save.
B) equal investment injections because of the operation of the interest rate.
C) exceed investment injections, which causes the level of economic activity to fall.
D) are less than investment injections because of business opportunities created by technological change.

Question

Quizplus · Accepted Answer

Classical economists believed that savings would equal investment due to the interest rate mechanism. They argued that if savings exceeded investment, interest rates would fall, encouraging more investment until savings and investment were equal. Conversely, if investment exceeded savings, interest rates would rise, discouraging investment until it matched the level of savings.

The Classical Economists Assumed That Savings Leakages from the Spending