In the classical view, if desired saving exceeds desired investment
A) government spending must fall.
B) government spending must rise.
C) the interest rate would decline.
D) the interest rate would increase.

Question

Quizplus · Accepted Answer

In the classical view, when desired saving exceeds desired investment, it leads to an increase in the supply of loanable funds. This excess savings will create downward pressure on interest rates as borrowers compete for the available funds. Therefore, the interest rate would decline. It does not necessarily imply that government spending needs to change.

In the Classical View, If Desired Saving Exceeds Desired Investment