The classical economists argued that saving is matched by an equal amount of investment because of
A) wage flexibility.
B) price flexibility.
C) money flexibility.
D) interest rate flexibility.
E) b and c

Question

Quizplus · Accepted Answer

The classical economists argued that interest rates would adjust to ensure that saving and investment are equal. If there is excess saving and insufficient investment, interest rates will fall, making borrowing cheaper and encouraging more investment, which will eventually bring saving and investment into balance. Similarly, if there is excess investment and insufficient saving, interest rates will rise, discouraging borrowing and slowing down investment until saving and investment are equal. This mechanism is referred to as interest rate flexibility.

The Classical Economists Argued That Saving Is Matched by an Equal