A ceiling on interest rates is likely to result in a shortage in the loanable funds market.

Question

Quizplus · Accepted Answer

When there is a ceiling on interest rates, lenders may have less incentive to lend because they cannot charge higher interest rates to compensate for the risk of default. This can result in a decrease in the supply of loanable funds, leading to a shortage in the market. Borrowers may also have less incentive to borrow at the lower rates, resulting in a decrease in demand for loans.

A Ceiling on Interest Rates Is Likely to Result in a Shortage