Saving is often discouraged by usury laws during inflationary periods because
A)nominal rates of interest are kept above real rates of interest.
B)nominal rates of interest are kept below inflation rates.
C)nominal rates of interest are kept above inflation rates.
D)real rates of interest are kept above inflation rates.

Question

Quizplus · Accepted Answer

Usury laws typically set a cap on the maximum interest rate that lenders can charge on loans. However, during inflationary periods, the nominal interest rates (as determined by the usury laws) may not keep up with the inflation rate. This means that the real interest rate (the nominal rate minus the inflation rate) may actually be negative, discouraging savers from lending money because they will not earn a real return on their savings. Therefore, in order to encourage saving, nominal interest rates must be higher than the inflation rate, which is not always possible under usury laws. Choice B correctly identifies this situation.

Saving Is Often Discouraged by Usury Laws During Inflationary Periods