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Q. Explain the classical motivation?
The classical motivation: Consumers want to smooth their consumption over time. In good times, consumers know that it is a temporary state. Rather than increasing consumption, they save and use their savings in bad times.
Figure: Classical and Keynesian consumption function
According to liquidity preference theory, an increase in the price level causes the interest rate to: a.decrease, which decreases the quantity of goods and services demanded. b.inc
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determination of interest rate in classical model
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