If the equilibrium rate of interest would be 10 percent, but the usury law sets 8 percent,
A)the quantity of funds supplied would be greater than the quantity demanded.
B)economic efficiency would be promoted.
C)some applicants for loans would likely be turned down.
D)lenders would be able to fund fully all requests for loans.

Question

Quizplus · Accepted Answer

With the usury law setting the interest rate at 8 percent, some lenders may be unwilling to lend at that rate, as they cannot earn a reasonable return on their investment. This could lead to some applicants for loans being turned down, as the quantity of funds supplied may not be enough to meet the quantity demanded. This could lead to inefficiencies in allocation of capital, as there may be borrowers who would be able to generate more value from the loan than what the lender is willing to provide at the capped rate.

If the Equilibrium Rate of Interest Would Be 10 Percent