According to Keynesian analysis of investment and savings, what element is left out of the classical solution to excess of planned savings over planned investment?
A) The effect of lower consumption on investment.
B) The effect of lower interest rates on savings.
C) The effect of lower interest rates on investment.
D) The effect of lower savings on consumption

Question

Quizplus · Accepted Answer

Keynesian analysis emphasizes the impact of consumption levels on economic variables. In the classical view, excess savings would lead to lower interest rates, which in turn would stimulate investment until savings and investment are equal. However, Keynes pointed out that lower consumption (which corresponds to higher savings) can lead to lower investment because businesses may not invest in producing more goods if they anticipate that consumers are not willing to spend. This effect of lower consumption on investment is what classical economists often overlooked.

According to Keynesian Analysis of Investment and Savings, What Element