Answer to Question #56858 in Microeconomics for Troy Youmans

Question

The equilibrium interest rate is 5% per year. A usury ceiling is established at 10% per year. The usury law is enforced. What will happen as a result?

Answer 1

If the equilibrium interest rate is 5% per year, a usury ceiling is established at 10% per year and the usury law is enforced, as a result the economic activity will be decreased, the inflation rate will fall and all this steps can be counted as contractionary policy.