Q.__________ flexibility brings equality between savings and investment.

Flexibility of the rate of interest brings about equality between savings and investment (classical view).

In the classical theory of employment, saving and investment are both functions of the rate of interest. Saving rises when the interest rate is high (people are rewarded more for saving), while investment rises when the interest rate is low (borrowing is cheaper). If saving exceeds investment, the interest rate falls, discouraging saving and encouraging investment; if investment exceeds saving, the interest rate rises, doing the opposite.

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