WHY WOULD AN INCREASE IN SAVINGS PUT DOWNWARD PRESSURE ON THE INTEREST RATE? THIS, BASICALLY,DEALS WITH CLASSICAL ECONOMISTS AND INTEREST RATE FLEXIBILITY.

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When people save more money, the interest rate will tend to go down.  The reason for this can be seen in supply and demand analysis.  When people save, the supply of money available to be loaned goes up.  As you know, when supply goes up, equilibrium price goes down, all other things being equal.

As you also probably know, the price of money is the interest rate.  If the supply of money goes up, the price of money should go down.  Since the interest rate is the price of money, the interest rate should go down when savings go up.

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