QuestionJune 4, 2025

To be binding and effective, an interest rate ceiling must: shift the supply of savings function outward. shift the demand to borrow function outward. be below equilibrium. be above equilibrium.

To be binding and effective, an interest rate ceiling must: shift the supply of savings function outward. shift the demand to borrow function outward. be below equilibrium. be above equilibrium.
To be binding and effective, an interest rate ceiling must:
shift the supply of savings function outward.
shift the demand to borrow function outward.
be below equilibrium.
be above equilibrium.

Solution
4.1(290 votes)

Answer

be below equilibrium. Explanation 1. Define Interest Rate Ceiling An interest rate ceiling is a maximum limit set on the interest rate that can be charged on loans. 2. Determine Effective Condition For an interest rate ceiling to be binding and effective, it must be set **below the equilibrium** interest rate. This creates excess demand for loans as borrowers want more than lenders are willing to supply at that rate.

Explanation

1. Define Interest Rate Ceiling<br /> An interest rate ceiling is a maximum limit set on the interest rate that can be charged on loans.<br /><br />2. Determine Effective Condition<br /> For an interest rate ceiling to be binding and effective, it must be set **below the equilibrium** interest rate. This creates excess demand for loans as borrowers want more than lenders are willing to supply at that rate.
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