A ceiling on interest rates results in:

Question

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When a ceiling is imposed on interest rates, it sets a maximum limit to the price that lenders can charge for borrowing, which creates a situation where the demand for lending exceeds the supply of available funds. This imbalance results in a shortage of loanable funds as borrowers cannot obtain loans at the rate they are willing to pay, while lenders are not incentivized to lend at a lower rate. As a result, borrowers are unable to obtain the funds they need, leading to a reduction in investment and economic growth.

A Ceiling on Interest Rates Results In