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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

Are households demanders or suppliers in the goods market? Are firms demanders or suppliers in the goods market? What about the labor market and the financial market?

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