The State of Transas Has Set a Maximum Interest Rate

question 3

Multiple Choice

The state of Transas has set a maximum interest rate of 12 percent on loans. Matt borrows $10,000 from Tony to pay off a gambling debt. Both are residents of Transas. They sign a contract, which states that Matt would have to pay $1,500 as interest in one year to pay off the loan. Later, Matt gets to know about the state usury limit and sues Tony. What is the nature of the contract between Matt and Tony?

• A) It is illegal as it violates gambling statutes.
• B) It is legal as both parties were competent when the contract was signed.
• C) The contract is void as it violates usury laws.
• D) The contract is void as it is a contract to commit a crime.

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Definitions:

Marginal Product

The additional output produced by adding one more unit of a specific input, while holding other inputs constant.

Production Possibilities

Various combinations of the amounts of different goods that can be produced within a given economy, given technological constraints and available resources.

Isocost Line

A graph line representing all combinations of a firm's inputs that cost the same total amount.

Expenditures

The financial outflows or payments made by an individual, organization, or government unit, usually for goods or services.