In the neoclassical view of the macroeconomy, if there is not enough investment spending to use all available savings
A) the Federal Reserve will raise the interest rate.
B) the interest rate will fall.
C) excess savings will be hoarded.
D) excess savings will be used to pay taxes.

Question

Quizplus · Accepted Answer

According to the neoclassical view, the market will adjust the interest rate to equate savings and investment. If there is excess savings, then the demand for funds will be lower than the supply of funds, pushing the interest rate down. This will encourage more investment and less saving until the two are equalized.

In the Neoclassical View of the Macroeconomy, If There Is