suppose that the demand for loanable funds for car loans in rate of 10 percent y

Question

suppose that the demand for loanable funds for car loans in rate of 10 percent year, 11 million at an interest rate of 9 percent per year, 12 million at an interest of 8 percent per year, and so on. If the supply of loanable funds is fixed at 15 million, what will be the equilibrium interest rate? If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be? What if the usury limit is raised to 7 percent per years?

Explanation / Answer

HI, If you like my answer please rate me Lifesaver the demand function can be written as r = 14 - L/($2 million), where r is the interest rate and L is the loanable funds. if supply is fixed at L = 15 million, r = 14 - 15/2 = 6.5 percent. If government fixes r to be less than or equal to 3% then Loan demanded => 3 = 14- L/2 or L =22 million but loan supplied is fixed at 15 million So shortage = 22-15 million = $7 million as we determined, the equilibrium rate was 6.5%, so if the limit is 7% > 6.5%, there will be no shortage.

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