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Hey everyone, today we're answering problem 25 from chapter 4 of the textbook, which deals with the financial market.
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We're told that if there's a price stealing of 20 % on all loans, who would gain and who would lose.
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So remember, the two major players are the borrowers who are demanding these loanable funds in the financial market, and then the suppliers or the lenders of these loanable funds.
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So in thinking about who stands to gain and who stands to lose, based off of this price ceiling, we want to be thinking in terms of borrowers and lenders.
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So first, i'm just going to draw a price ceiling on our graph for the financial market.
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So a price ceiling looks like this.
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It's always below equilibrium.
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And essentially, the quantity demanded for loanable funds exceed the quantity supplied by lenders for these exact same funds.
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So due to this, there's going to be a shortage.
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And essentially, with the shortage, what is going to happen is that the shortage would affect both suppliers and demanders.
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So on the end of demanders or borrowers, essentially borrowers would actually be borrowing at a lower interest rate...