Assume that the government sets a ceiling on the interest rate that banks charge on loans. If the ceiling is set below the market equilibrium interest rate, the result will be
A) a surplus of credit
B) a shortage of credit
C) greater profits for banks issuing credit
D) an increase in the quantity supplied of credit

Question

Quizplus · Accepted Answer

When a government sets a ceiling on interest rates below the market equilibrium, it makes it less profitable for banks to lend money, leading to a decrease in the supply of credit. This creates a shortage of credit because the quantity demanded exceeds the quantity supplied at the artificially low price.

Assume That the Government Sets a Ceiling on the Interest