Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 27, Problem 7CQ
To determine
Reason for the high credit rate and the impact of interest ceiling at 10 per cent.
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Students have asked these similar questions
Distinguish between Market and Inflation-Free Interest Rates?
Describe how interest could be good or bad, depending on the situation, and explain why interest rates are currently so low?
Many countries have policies that limit how much interest a moneylender can charge on a loan.
Do you think these limits are a good idea?
Who benefits from the laws and who loses?
What are likely to be the long-term effects of such laws?
Tips:
For part 2, you may think about how a low interest rate would affect the poor and those who owe huge debts.
For part 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).
Chapter 27 Solutions
Economics: Private and Public Choice (MindTap Course List)
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Similar questions
- Explain how government gains from unexpected inflation when it borrows? If this is true, why would it choose to offer indexed bonds?arrow_forwardWhich state body determines the value of the interest rate and what instruments are used to regulate it?arrow_forwardWhat is the difference between Market and Inflation-Free Interest Rates?arrow_forward
- What will happen in the bond market if the government imposes a limit on the amount of daily transactions?Which characteristic of an asset would be affected? How might it affect the interest rates?arrow_forwardYou are getting a loan to buy your first home. It is a $250,000 home with three bedrooms and two bathrooms. The price is so low because the economy was bad, a lot of people lost their jobs, and few people are buying homes. You got the following information from the bank: Loan Amount: $150,000 Interest Rate 1 month ago: 4.5% Today: 4.1% Loan Period: 15 years (180 months) 1.Based on what you are hearing from friends and what you know about supply and demand in financial markets, what would you predict about the level of interest rates for house loans in the future? Will they stay the same, increase, or decrease? 2.Explain your answer by drawing and explaining two supply and demand curves: one showing the interest rate today (assume it is 4.1%) and one predicting what the interest rate will look like in one month. 3.arrow_forwardWould it be advantageous to borrow money if you expected prices to rise? Would you want a fixed-rate loan or one with an adjustable interest rate?arrow_forward
- Explain the bond markets in the real world.arrow_forwardThe financial system must ensure the availability of efficient credit facilities to allow greater movements of goods and services. Is it true or false?arrow_forwardCurrently the Federal Reserve is gradually raising interest rates. What challenges come with doing that in an economically healthy way? If they were lowering rates, what challenges would come with that?arrow_forward
- If the Federal Reserve wants to set an interest rate that best promotes economic growth and new jobs, what factors should they consider?arrow_forwardThe discount rate will never be equal to interest rate. True or False?arrow_forwardwhen the inflation rate is expected to increase, the real cost of borrowing ______ at any given interest rate; the supply of bonds _____ and the supply curve shifts to the _____. is either rise or decline increase or decrease left or rightarrow_forward
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