The correct answer is: B. Abstinence
The classical theory of interest is a theory of interest that was developed in the 18th and 19th centuries. It is based on the idea that interest is a reward for abstinence, or the sacrifice of present consumption for future consumption.
According to this theory, people are willing to save money because they want to be able to consume more in the future. However, they are also willing to lend money to others because they expect to be paid interest on their loan. The interest rate is determined by the supply and demand for loanable funds.
The supply of loanable funds is determined by the amount of savings that people are willing to make. The demand for loanable funds is determined by the amount of investment that businesses are willing to undertake.
The classical theory of interest has been criticized for being too simplistic. It does not take into account the risk of default, the time value of money, or the fact that people may save for reasons other than consumption.
However, the classical theory of interest is still a useful tool for understanding the basic forces that determine interest rates.
A. Parting with liquidity
This is not the correct answer because the classical theory of interest does not view interest as a reward for parting with liquidity. Instead, it views interest as a reward for abstinence.
C. Saving
This is not the correct answer because the classical theory of interest does not view interest as a reward for saving. Instead, it views interest as a reward for abstinence.
D. Inconvenience
This is not the correct answer because the classical theory of interest does not view interest as a reward for inconvenience. Instead, it views interest as a reward for abstinence.