In the classical model with fixed output, the supply and demand for goods and services are balanced by:
A) government spending.
B) taxes.
C) fiscal policy.
D) the interest rate.

Question

Quizplus · Accepted Answer

In the classical model with fixed output, the supply and demand for goods and services are balanced by the interest rate. The interest rate adjusts to equate the savings and investment, which in turn balances the supply and demand for goods and services. Government spending, taxes, and fiscal policy may affect different variables in the economy, but they do not directly balance the supply and demand for goods and services in the classical model with fixed output.

In the Classical Model with Fixed Output, the Supply and Demand