equilibrium interest rate rose above 35%, the interest rate would be capped at that rate, and the quantity of

loans would be lower than the equilibrium quantity, causing a shortage of loans.

7. b and c will lead to a fall in interest rates. At a lower demand, lenders will not be able to charge as much,

and with more available lenders, competition for borrowers will drive rates down.

8. a and c will increase the quantity of loans. More people who want to borrow will result in more loans being

given, as will more people who want to lend.

9. A price floor prevents a price from falling below a certain level, but has no effect on prices above that level. It

will have its biggest effect in creating excess supply (as measured by the entire area inside the dotted lines on

the graph, from D to S) if it is substantially above the equilibrium price. This is illustrated in the following

figure.
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