Some Governments Enact Usury Laws, Which Hold the Interest Rate

question 15

Multiple Choice

Some governments enact usury laws, which hold the interest rate below its equilibrium level. Economic analysis indicates that under such laws,

• A) saving would increase.
• B) borrowers would demand less from the loanable funds market.
• C) anyone who wanted to borrow would be happy with the lower interest rate.
• D) there would be a shortage of loanable funds, necessitating rationing by some means other than the price (interest rate).

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Definitions:

Pure Competition

A market structure characterized by many buyers and sellers, free entry and exit, and a homogeneous product, leading to price determination by supply and demand.

Price-taking Behavior

Describes individuals or companies that accept market prices as given because they have no power to influence those prices.

Pure Competition

A market structure characterized by many buyers and sellers, homogenous products, and no barriers to entry or exit, leading to efficient outcomes.

Market Model

A theoretical construct that describes the workings of a market through a set of mathematical equations or principles, aiming to predict the outcome of market forces.