Historically, many cultural groups have outlawed usury, or the practice of levying interest on loans. Some groups oppose usury because it exacerbates problems of income inequality (as wealthier individuals can afford to lend to poorer individuals), while others claim investment and loans should be made charitably. Evaluate these arguments against usury based on your knowledge of present value. Do such prohibitions make sense?
What will be an ideal response?
Prohibitions on interest payments (or usury) are problematic when we apply the concept of opportunity cost. For every dollar that is lent, the lender gives up the use of these funds that could go elsewhere. For example, the funds could be used for consumption, or for earning return on some other investment (such as a bank deposit or bond). If usury is outlawed, then there is no incentive to lend, outside of the perceived benefit the lender receives from charitable contributions to his/her colleagues.
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Which of the following is an example of signaling in a market with asymmetric information?
A) Certification of used cars by third parties B) Rent controls imposed by the government C) Discounts offered by sellers during the holiday season D) Taxation of alcoholic beverages
Which of the following would tend to increase aggregate demand, other things equal?
a. An increase in the money supply curve b. A decrease in the money supply curve. c. An increase in the money demand cuvre. d. Both a. and c. would tend to increase aggregate demand, other things equal.