Classical economists assume that
A)Spending leakages exceed spending injections.
B)Interest rate adjustment will cause business investment to equal consumer saving.
C)The economy might experience persistent macro instability.
D)No leakages would occur.

Question

Quizplus · Accepted Answer

Classical economists believe that interest rate adjustments will lead to a balancing of business investment and consumer saving, because as interest rates rise, consumers save more and invest less, leading to an increase in loanable funds available for businesses to borrow and invest. They do not assume that there will be no leakages, as consumption, saving, and taxes all constitute leakages in the economy. They also do not necessarily assume that the economy will always be free of persistent macro instability, as fluctuations in economic activity can still occur even with interest rate adjustment.

Classical Economists Assume That