In the classical model, changes in interest rates will always ensure that
A) consumption equals production.
B) saving equals investment.
C) consumption equals investment.
D) consumption equals income.

Question

Quizplus · Accepted Answer

In the classical model, changes in interest rates work to equate saving and investment through the mechanisms of the loanable funds market. As interest rates rise, the quantity of saving increases and the quantity of investment decreases, leading to an equilibrium where saving equals investment. Therefore, option B is the correct answer. Options A, C, and D are all incorrect as they do not accurately reflect the role of interest rates in the classical model.

In the Classical Model, Changes in Interest Rates Will Always