The classical model indicates that at the equilibrium interest rate, saving is
A) equal to investment.
B) greater than investment.
C) unnecessary for investment.
D) less than investment.

Question

Quizplus · Accepted Answer

According to the classical model, at the equilibrium interest rate, saving is equal to investment. This is because the interest rate helps to balance the supply and demand for loanable funds in the economy, which means that the amount of saving is equal to the amount of investment that is funded by those savings. In other words, when the interest rate is at its equilibrium level, there is no excess supply or demand of loanable funds, and the economy is operating efficiently.

The Classical Model Indicates That at the Equilibrium Interest Rate