In the classical 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 classical view of the macroeconomy, the interest rate adjusts to balance savings and investment. If there is not enough investment spending to use all available savings, the demand for loans decreases, causing the interest rate to fall. This in turn stimulates more borrowing and investment, bringing savings and investment back into balance. Thus, a reduction in the interest rate is the correct answer.

In the Classical View of the Macroeconomy, If There Is