The equilibrating force in the credit market in the classical model is
A) the interest rate.
B) the price level.
C) full employment.
D) fiscal policy.

Question

Quizplus · Accepted Answer

In the classical model, the equilibrating force in the credit market is the interest rate, which adjusts to ensure that the supply of savings from households and the demand for investment from firms are equal. As the interest rate changes, it influences the level of investment and consumption in the economy, which in turn affects the overall level of output and employment. Therefore, choice A is the correct answer. The price level (choice B) is not directly related to the credit market in the classical model, and full employment (choice C) is an assumption rather than an equilibrating force. Fiscal policy (choice D) can also affect the credit market, but it is not the equilibrating force in the classical model.

The Equilibrating Force in the Credit Market in the Classical