Suppose Life Becomes More Unpredictable and Households Decide to Increase

question 107

Multiple Choice

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.

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Definitions:

Relations

The ways in which two or more concepts, objects, or people are connected; a particular way in which someone or something is related or connected to something else.

Analogy Problems

Logical puzzles or questions that require solving by finding relationships between pairs of words, ideas, or situations.

Mental Set

The inclination to approach situations with a predetermined framework of understanding, often based on former experiences, that could potentially limit novel solutions.

Functional Fixedness

A mental bias that restricts an individual to utilizing an item solely in its conventional manner, impeding creativity and the ability to solve problems.