Question

Suppose the equilibrium interest rate for car loans is 5%. Politicians argue that this is too high, and vote to impose a maximum interest rate of 2%. Which of the following is likely to happen?

Group of answer choices

Answer 1

If I have to go with the probability there is a 95% chance that the interest rate for car loan will be kept at 2%. The main reason that this will be likely to happen because most of the politicians will use this to gain popularity in public and use it it as an advantage for their political life. So this will likely to happen. But there is also another choice because if the interest rates are reduced than the financial companies will face loss and it will have an impact on the economy but there will increase in sales for cars which increase production and investment in Cars. Thus politicians will support the decrease in interest rate for car loans.