Suppose the government imposes a policy which does not allow interest rates in the home mortgage market to rise above a certain level.Given that this level is set below the equilibrium interest rate,which of the following is a consequence of this policy?

Question

Quizplus · Accepted Answer

When the government imposes a policy that does not allow interest rates in the home mortgage market to rise above a certain level, it creates a price ceiling. Since this level is set below the equilibrium interest rate, the demand for mortgages will exceed the supply, leading to a shortage. Therefore, the correct choice is B. A surplus of mortgages (Choice A) would happen if the price ceiling were set above the equilibrium interest rate. The credit standards for people applying for loans (Choice C) are unlikely to change due to the policy intervention. All individuals who apply for a mortgage (Choice D) will not be able to get one due to the shortage caused by the price ceiling.

Suppose the Government Imposes a Policy Which Does Not Allow