Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Q25 (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

Government imposed federal interest rate ceiling of 20% makes borrowers gain & lenders lose.

Step by step solution

01

Price Ceiling Concept 

Price Ceiling is the maximum mandated sale price of a good. It is set by regulatory body to protect the interests of buyers.

02

Detail Explanation 

If in financial markets, government imposes a federal ceiling on price of loans ie interest rates, at 20% :

  • Buyers ie borrowers of these loans gain, as they are paying lower than free market equilibrium interest rates.
  • Sellers ie lenders of these these loans lose, as they are earning lower than free market equilibrium interest rate/

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

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in

supply.

Identify the most accurate statement. A price floor will have the largest effect if it is set:

a. substantially above the equilibrium price

b. slightly above the equilibrium price

c. slightly below the equilibrium price

d. substantially below the equilibrium price

Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.

a. The number of people at the most common ages for home-buying increases.

b. People gain confidence that the economy is growing and that their jobs are secure.

c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans.

d. Because of a threat of a war, people become uncertain about their economic future.

e. The overall level of saving in the economy diminishes.

f. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.

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?
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