According to the economic analysis of usury laws, what is a likely consequence of a maximum interest rate set below the equilibrium rate?
Explanation
A usury law that sets an interest rate ceiling below the market equilibrium price creates a shortage of loanable funds because at that lower rate, more people want to borrow but fewer are willing to lend.
Other questions
What is the economic definition of rent?
Why is the supply of land considered perfectly inelastic from an economic perspective?
According to the model of land rent presented in the chapter, if the supply of land is perfectly inelastic, what is the sole active determinant of the rent?
What was the central idea of Henry George's single-tax movement?
Which of the following is a major criticism of the single-tax on land proposal?
What is the economic definition of interest?
In the loanable funds theory of interest, why does the supply curve for loanable funds slope upward?
What does the concept of the time-value of money suggest?
What is the difference between the nominal interest rate and the real interest rate?
If the nominal interest rate is 10 percent and the rate of inflation is also 10 percent, what is the real interest rate?
What is the primary purpose of usury laws?
How does the economist's definition of profit differ from the accountant's definition?
In economic terms, what are the three general sources of uninsurable business risks?
What are the two primary functions of economic profit in a market economy?
Why do interest rates on loans vary?
What is the economic role of the entrepreneur, leading to them being the residual claimant of economic profit?
What is meant by the term 'incentive function' in the context of resource prices?
According to the example in Table 14.1, if Max places 1000 dollars in an account with 10 percent interest, what is the total amount in the account at the end of year 2?
In the 'Last Word' section on determining the price of credit, what is the effective interest rate if a bank lends 10,000 dollars but discounts a 1,000 dollar interest payment at the time the loan is made, giving the borrower only 9,000 dollars?
What is the primary function of interest rates in the allocation of capital?
Which factor would most likely cause the demand curve for loanable funds to shift to the right?
In a static, risk-free, purely competitive economy, what would the level of economic profit be in the long run?
What is the relationship between monopoly power and economic profit?
According to the income shares discussion in the chapter, what is the approximate share of national income that goes to labor (defined broadly to include proprietors' income)?
Why do longer-term loans typically command higher interest rates than shorter-term loans, other things being equal?
If a firm's total revenue is 100,000 dollars, its explicit costs are 60,000 dollars, and its implicit costs are 30,000 dollars, what is its economic profit?
In the 'Last Word' section, if a bank lends you 10,000 dollars and the loan contract requires repayment in 12 equal monthly installments, why is the effective interest rate on a 1,000 dollar interest charge higher than 10 percent?
What is the primary reason that a single tax on land, as proposed by Henry George, is considered an efficient tax?
According to the loanable funds theory, what must a firm do to determine if an investment is profitable?
What does a normal profit represent in economic terms?
Why do economists view land rent as a 'surplus payment' from society's perspective?
What distinguishes an insurable risk from an uninsurable risk?
Which financial instrument is considered the best approximation of the pure rate of interest?
How does an increase in consumer demand for a firm's product affect the firm's demand for loanable funds?
If Max from Table 14.1 lets his 1000 dollars compound for 3 years at 10 percent interest, what is his total interest earned?
Why do economists consider innovation to be a source of economic profit?
The price of money is another term for what?
What is the key difference in how an individual firm and society view the payment of land rent?
Based on the data for January 15, 2008, in Table 14.2, which interest rate was the highest?
Why do interest rates on state and municipal bonds tend to be lower than rates on corporate bonds?
How do continuing economic profits in an industry affect resource allocation?
What is the residual claimant in an enterprise?
In the loanable funds model, which of the following is an example of a demander of funds?
If Max from Table 14.1 places 1000 dollars in a 10 percent interest account, the future value of this money after 3 years is 1331 dollars. What is the present value of that 1331 dollars?
Why do economists argue that continuing losses in an industry are beneficial for resource allocation?
What is the primary effect of an increase in the Federal funds rate, as managed by the Federal Reserve?
A recession, which is a downturn in the general economic environment, is an example of what kind of risk for a business?
What does a business owner's normal profit represent?
Based on the information in the 'Last Word' section, if you borrow 10,000 dollars and are required to repay it plus 1,000 dollars interest at the end of one year, what is the interest rate?