In the classical model with fixed income, if the interest rate is too low, then investment is too ______ and the demand for output ______ the supply.
A) high; exceeds
B) high; falls short of
C) low; exceeds
D) low; falls short of

Question

Quizplus · Accepted Answer

In the classical model with fixed income, if the interest rate is too low, investment becomes too high because lower interest rates make borrowing cheaper, encouraging more investment. Consequently, the demand for output exceeds the supply because increased investment boosts overall demand in the economy.

In the Classical Model with Fixed Income, If the Interest