Suppose life becomes more unpredictable and households decide to increase their precautionary savings.In this case,the loanable funds model predicts that

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When households decide to increase their precautionary savings, the supply of loanable funds in the market increases. According to the loanable funds model, an increase in the supply of funds leads to a decrease in the interest rate. With lower interest rates, it becomes cheaper for individuals and businesses to borrow, leading to an increase in the quantity of borrowed funds.

Suppose Life Becomes More Unpredictable and Households Decide to Increase