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Let us analyze the effects of interest rate restrictions in the credit market. In many countries, interest rate ceilings (i.e. price ceilings in the
Let us analyze the effects of interest rate restrictions in the credit market. In many countries, interest rate ceilings (i.e. price ceilings in the credit market) are placed so that firms may have access to cheap credit. Suppose the market for loans for the country of Kryz was estimated by the following inverse demand and supply curves. Inverse Demand: P = 9-Qd. Inverse Supply: P = 3+2Qs. Qd = loan demand (in thousands), Qs = loan supply (in thousands). P-real interest rate (price of credit) in percent (So for example P=10 means 10 percent). a. Suppose now the interest rate ceiling can be set at 5 OR 8. CALCULATE the exact amount of surplus or shortage in EACH case.
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