The classical theory predicts that an increase in the supply of savings will

Question

Quizplus · Accepted Answer

According to the classical theory, an increase in the supply of savings will lead to a surplus of savings over the demand for savings. This surplus will put downward pressure on interest rates, which will in turn make borrowing cheaper and more attractive. As a result, businesses and households will increase their borrowing and investment, leading to an expansion of investment. Therefore, the correct answer is B.

The Classical Theory Predicts That an Increase in the Supply