If the government imposes an interest rate ceiling below the equilibrium interest rate in the loanable funds market,then:

Question

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When the government imposes an interest rate ceiling below the equilibrium interest rate, it creates excess demand for loanable funds, meaning that the quantity of loanable funds demanded exceeds the quantity of savings supplied. This is because at the lower interest rate, individuals and businesses are more willing to borrow, but savers are less willing to lend their money at a lower rate of return. As a result, there is a shortage of loanable funds, leading to potential credit rationing and inefficient allocation of resources.

If the Government Imposes an Interest Rate Ceiling Below the Equilibrium