In the classical model with fixed income, if the interest rate is too high, 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 high, investment is discouraged, leading to lower investment levels. Consequently, the demand for output falls short of the supply because high interest rates reduce spending and investment.

In the Classical Model with Fixed Income, If the Interest