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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/

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Most popular questions from this chapter

Why are the factors that shift the demand for a product different from the factors that shift the demand for labor? Why are the factors that shift the supply of a product different from those that shift the supply of labor?

What would be a sign of a shortage in financial markets?

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

Select the correct answer. A price floor will usually shift:

a. demand

b. supply

c. both

d. neither

Illustrate your answer with a diagram.

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
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