Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Question

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Usury laws set maximum interest rates that can be charged on loans, which can lead to a shortage of loanable funds because lenders may not find it profitable to lend at these capped rates. Consequently, this can result in nonmarket rationing, where lenders use criteria other than price (interest rate) to allocate loans, such as favoring customers with long-standing relationships or higher creditworthiness.

Usury Laws Will Result in a Shortage of Loanable Funds