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Chapter 11: Problem 5

According to the classical economists, (LO2) a) people will always spend all their money b) any money that is saved will be invested c) saving will always be greater than investment d) saving will always be smaller than investment

Short Answer

Expert verified
According to the classical economists, the most accurate statement is b) "any money that is saved will be invested," as they believe in an equilibrium between savings and investments, contributing to economic stability and growth.

Step by step solution

01

Identify the Classical Economists' View on Saving and Investment

According to the classical economists, the relationship between saving and investment plays a significant role in determining the economic stability and growth. They believe in the concept of 'Say's Law', which states that the supply creates its own demand, meaning that the total savings in an economy will be equal to the total investments.
02

Analyze the Statements

a) The statement "people will always spend all their money" does not accurately represent the classical economists' view; they believe that people save a portion of their income. b) The statement "any money that is saved will be invested" is the one coming close to their view that the total savings will be equal to the total investments. c) The statement "saving will always be greater than investment" contradicts the classical economists' opinion as they believe in an equilibrium between the savings and investments. d) Similarly, the statement "saving will always be smaller than investment" does not represent the classical economists' view, as it contradicts the equilibrium mentioned earlier.
03

Determine the Correct Statement

Based on the analysis of the four statements, we can conclude that statement b) "any money that is saved will be invested" is the most accurate representation of the classical economists' view on saving and investment. According to them, any savings in an economy will be equal to the investments made, leading to economic stability and growth.

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Most popular questions from this chapter

Which of the following is the most accurate statement about meeting our current economic needs? (LO2, 7) a) John Maynard Keynes, rather than Jean Baptiste Say, is providing the economic answers we need. b) Say, rather than Keynes, is providing the economic answers we need. c) Neither Keynes nor Say is providing the economic answers we need. d) Together, Keynes and Say are providing the economic answers we need.

Our economy is definitely at equilibrium in each case except when ( \(\mathrm{O} 4)\) a) saving equals investment b) aggregate demand equals aggregate supply c) the amount people are willing to spend equals the amount that producers are producing d) equilibrium GDP equals full-employment GDP

The slope of the aggregate demand curve is explained by each of the following except \((\mathrm{LO} 3,4)\) a) the real balance effect b) the interest rate effect c) the foreign purchases effect d) the profit effect

Keynes said (LO5) a) the expected profit rate was more important than the interest rate b) the interest rate was more important than the expected profit rate c) the expected profit rate and the interest rate were equally important d) neither the expected profit rate nor the interest rate was important

When aggregate demand is greater than aggregate supply, (LO4) a) inventories get depleted and output rises b) inventories get depleted and output falls c) inventories rise and output rises d) inventories rise and output falls
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