Which one of the following statements is TRUE?
A) In the classical model, the supply of saving is determined by the rate of interest.
B) In the classical model, the supply of saving is determined by the level of income.
C) In the Keynesian model, the supply of saving is determined by the rate of interest.
D) In the Keynesian model, the supply of saving is determined by the level of investment.

Question

Quizplus · Accepted Answer

In the classical model, the supply of saving is determined by the rate of interest. This is because in the classical model, individuals save a portion of their income and the interest rate serves as the incentive to save more or less. As the interest rate increases, individuals are incentivized to save more because they can earn a higher return on their savings. Conversely, as the interest rate decreases, individuals are incentivized to save less because the returns on their savings would be lower.

Which One of the Following Statements Is TRUE