Evaluate the following statements about theories of interest rate determination:
I. The Classical (Loanable Funds) Theory holds that the rate of interest is determined by the demand for and supply of loanable funds — it is a real theory where the interest rate equates savings and investment in the economy.
II. Keynes's Liquidity Preference Theory holds that the rate of interest is determined by the demand for and supply of money (liquidity) — it is a monetary theory where money demand arises from transactionary, precautionary, and speculative motives. Which of the above is/are correct?

Both statements correctly describe the two major theories of interest rate determination. Statement I: The Classical Loanable Funds Theory (associated with economists like Marshall, Pigou, and Robertson) treats interest as a real phenomenon — the price that equates the supply of savings (loanable funds) with the demand for investment. A higher interest rate encourages more saving and discourages borrowing/investment until equilibrium is reached. Statement II: Keynes, in his General Theory (1936), argued that interest is a monetary phenomenon — it is the reward for parting with liquidity (i.e., for holding an asset other than money). The demand for money (liquidity preference) arises from three motives: transactions demand (for day-to-day spending), precautionary demand (for emergencies), and speculative demand (to profit from anticipated changes in bond prices). The interest rate is determined where money demand equals money supply.