Question

If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?

Short answer

Usury Law limits would imply : Interest rate would be lower, and amount of funds supplied would be less than amount of funds demanded.

Step-by-step solution

Price Ceiling and Usury Law 

Price Ceiling is the maximum mandated sale price of a commodity, fixed by regulatory body to protect the interests of buyers.

Usury Law imposes price ceiling ie maximum interest rate in financial markets.

Detail Explanation

Market equilibrium is at E, with equilibrium interest rate & funds' quantity P & Q respectively. Usury Law imposed price floor at lower P* implies that funds' supply reduces to OQ1 & their demand increases to OQ2. There is excess demand of Q1 Q2