According to classical economists,if the amount of funds households save is greater than the amount of funds firms invest,then
A) the interest rate will fall,ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest.
B) the interest rate will rise,ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest.
C) the interest rate will remain constant and people will simply buy more goods.
D) more money will he used for leisure purposes,since households save in order to consume leisure at some later time.
E) none of the above

Question

Quizplus · Accepted Answer

According to classical economists, if the amount of funds households save is greater than the amount of funds firms invest, this implies a surplus of loanable funds in the market, which brings down the interest rate. At a lower interest rate, firms find it profitable to invest more, while households may reduce their savings due to the lower return on savings. This process continues until the interest rate adjusts to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. Therefore, the correct answer is A.

According to Classical Economists,if the Amount of Funds Households Save