Answer to Question #121183 in Economics of Enterprise for Ramsha nawab

Question

If a federal interest rate was imposed by the Government 30% ceiling on all loans that would be earned and who will they lose?

Answer 1

Financial institutions will take advantage and set the interest rate charged on loans at the maximum (30%) resulting to an increase in the quantity of financial capital that is supplied to the economy. On the other hand, this will result to a decrease in the quantity of financial capital demanded by borrowers. Therefore, financial institutions will start losing their customers due to the higher rate of interest charged on loans.