Suppose life becomes more unpredictable and households decide to ...

[tnt_battle]

Suppose life becomes more unpredictable and households decide to increase their precautionary savings. In this case, the loanable funds model predicts that
 
  A) interest rate goes down, and quantity of borrowed funds increases.
  B) interest rate goes down, and quantity of borrowed funds decreases.
  C) interest rate goes up, and quantity of borrowed funds decreases.
  D) interest rate goes up, and quantity of borrowed funds increases.

Question 2

Suppose government does not allow households to deduct their mortgage interest expenses from their income tax anymore. How this change is represented in the loanable funds model?
 
  A) The supply of funds curve shifts to the left.
  B) The supply of funds curve shifts to the right.
  C) The demand for funds curve shifts to the left.
  D) The demand for funds curve shifts to the right.

[ynlevi]

Answer to Question 1

A

Answer to Question 2

C