. The classical theory of interest tells that the rate of interest
is determined by the supply of capital which depends upon savings and the demand for capital for investment.
- The classical theory of interest is given by J.S Mill, Marshall, and Pigou.
- As per this theory of interest, the rate of interest totally depends on supply and demand (real factor) for capital for investment under perfect competition.
- The supply of capital depends upon the savings pattern of the investors and the demand for capital depends upon the productivity of the capital.
- This theory is also known as - saving-investment theory, capital theory of interest, or real theory of interest.
Hence, the correct answer is option A: True.