Where is the interest rate determined in the classical model?

Question

Quizplus · Accepted Answer

In the classical model, the interest rate is determined in the loanable funds market, where the supply of saving and the demand for investment funds meet to determine the equilibrium interest rate. This market is based on the assumption that individuals and firms save a portion of their income and loan these savings to others who need funds to invest in productive projects. The equilibrium interest rate ensures that the supply of saving is equal to the demand for investment, resulting in an optimal allocation of resources over time. The other options (A, C, D, and E) are not relevant to the classical model's determination of the interest rate.

Where Is the Interest Rate Determined in the Classical Model