. 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.

A: True

B: False

 

Best Answer

Explanation:

  • 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.

Final answer:

Hence, the correct answer is option A: True.

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