According to classical economists, the credit market reaches an equilibrium when
A) planned investment equals government expenditures.
B) desired investment equals planned investment.
C) desired investment equals planned changes in aggregate supply.
D) desired investment equals desired saving.

Question

Quizplus · Accepted Answer

According to classical economists, the credit market reaches an equilibrium when desired investment equals desired saving. This is based on the assumption that saving and investment are the two sides of the same coin, and any excess of saving over investment leads to a contraction in output and employment. Therefore, the credit market equilibrium is achieved when the demand for credit by investors (i.e., desired investment) is equal to the supply of credit by savers (i.e., desired saving).

According to Classical Economists, the Credit Market Reaches an Equilibrium