The classical economists argued that planned saving and planned investment will always be equal because of changes in
A) the level of real disposable income.
B) the interest rate.
C) the price level.
D) wages.

Question

Quizplus · Accepted Answer

The classical economists believed in the concept of Say's Law, which states that supply creates its own demand. In other words, they believed that planned saving and planned investment will always be equal because any saving will lead to a reduction in demand and a corresponding fall in prices, which will stimulate investment. Therefore, the only variable that could affect the balance between planned saving and planned investment in the classical view is the interest rate. If the interest rate falls, investment tends to increase and saving to decrease, and vice versa if the interest rate rises.

The Classical Economists Argued That Planned Saving and Planned Investment