Asked by Nicole Nagatoshi on Apr 27, 2024
Verified
If the dotted horizontal line represents the effect of a usury law,then there is a ____ of loanable funds of ___ billion dollars.
A) shortage;100
B) surplus;100
C) shortage;150
D) surplus;150
Usury Law
Usury laws are regulations governing the interest rates that can be charged on loans, designed to protect consumers from exorbitant rates and predatory lending practices.
Loanable Funds
The market where savers supply funds for loans to borrowers, influenced by interest rates and government policies.
Shortage
A situation where the demand for a product or service exceeds its supply in a market.
- Absorb the implications of usury regulations for participants in the borrowing and lending markets.
Verified Answer
ZK
Zybrea KnightMay 02, 2024
Final Answer :
C
Explanation :
A usury law sets a maximum interest rate on loans. If the dotted horizontal line is below the equilibrium interest rate, it means the maximum legal rate is lower than what the market would naturally set. This leads to a higher quantity of loanable funds demanded than supplied, creating a shortage. The specific amount of the shortage depends on the difference between the quantities demanded and supplied at the usury law rate, which, based on the information provided, is 150 billion dollars.
Learning Objectives
- Absorb the implications of usury regulations for participants in the borrowing and lending markets.