What are usury laws and what are their economic effects?
What will be an ideal response?
Usury laws impose a legal price (or interest rate) ceiling on the rate of interest that can be charged by banks and other financial institutions. If the interest-rate ceiling is below the equilibrium interest rate there are three economic effects. First, there will be a shortage of money available for loans or “lending.” This shortage will require rationing by banks to the most credit-worthy customers. These customers generally have higher income, thus the poor tend to be hurt by the non market rationing schemes of financial institutions that are designed to address the shortage. Second, credit-worthy borrowers will gain because they are borrowing at below competitive market interest rates while lenders (financial institutions and their stockholders) will lose because they are required to lend at below market interest rates. Third, the interest rate is a price that provides information and incentives for allocating scarce resources in the economy. Interest-rate ceilings impair the guiding function of price in a market economy and can lead to inefficient allocation of resources.
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The figure above shows the market for a good with an external benefit. The efficient level of production is ________ units because ________
A) 8; marginal benefit equals marginal cost B) 8; marginal cost is less than marginal social benefit C) 10; marginal cost equals marginal social benefit D) 10; marginal social benefit exceeds marginal benefit E) 8; marginal benefit equals the marginal external benefit
We expect a rise in transfer payments when
a. the needs of the poor receive more publicity b. taxes rise c. GDP rises and inflation soars d. the retirement age remains unchanged over time e. recessions occur
Which one of the following statements is false?
a. Bequest value is the value of environmental services to future generations b. Willingness-to-pay tends to be smaller than willingness-to-accept for the same service c. The production function approach to valuation considers the cost of constructing facilities to provide environmental services d. Contingent valuation can be used to estimate existence values e. The value of just knowing a wild species exists is called indirect use value
Our trade balance in merchandise is ________ and our trade balance in services is __________.
A. positive; positive B. negative; negative C. negative; positive D. positive; negative