Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Q 25. (page 105)

If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

Short Answer

Expert verified

In this situation, there is an effect on both the lenders and borrowers.

Step by step solution

01

Step 1. Given information

The government imposed a federal interest rate ceiling of 20% on all loans.

02

Step 2. Definition

A price ceiling is referred to as a necessary most amount which a seller will be able to charge for their products and services. This is a kind of price control method.

03

Step 3. Explanation

This situation will affect lenders in a negative way as because of this price ceiling they will get less interest for the loans they provided.

On the other hand, in this situation, the borrowers are benefitted because now they are able to borrow more funds with less interest rates.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor?

How do economists define equilibrium in financial

markets?

During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.

a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor that the government can pursue if it wishes to encourage drilling for natural gas and for a new pipeline in Alaska.

If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free