Figure 19-3 ____ 44. Which panel in Figure 19-3 represents the case of an effect
ID: 1213893 • Letter: F
Question
Figure 19-3
____ 44. Which panel in Figure 19-3 represents the case of an effective usury law?
a.
1
b.
2
c.
3
.
d 4
____ 43. Usury laws typically regulate
a.
interest rates paid on savings.
b.
interest rates charged on loans.
c.
rents charged on land.
d.
economic rent earned in all factor markets.
Figure 19-3
____ 44. Which panel in Figure 19-3 represents the case of an effective usury law?
a.
1
b.
2
c.
3
.
d 4
____ 43. Usury laws typically regulate
a.
interest rates paid on savings.
b.
interest rates charged on loans.
c.
rents charged on land.
d.
economic rent earned in all factor markets.
Explanation / Answer
Usury law is an unethical practice of charging high interest rate. In diagram (a) and (b) interest charged is the rate of intersection point. Interest of (a) is much higher than interest of (b). But investors are ready to pay this rate for getting Q loan. So these rates are not considered as unethical.
In (c) interest charged is abormally high at 25%. It is much higher than equilibrium rate. Investors are ready to pay much lower rate than 25% to get Q loan. So it is a situation where usury law can be efective.
Finally consider situation (d). Here interest charged is much below the rate that investors are ready to pay. So no unethical rate is charged.
Answer: (c) is the right option for practicing usury law.
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Answer 43:
Usury law regulates abnormally high interest rate charged on loan. An upper ceiling is imposed. No lender can charge interest violating this ceiling. Thus option (b) is correct.
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