In: Economics
Suppose that, prior to the passage of the Truth in Lending Simplification Act and Regulation Z, the demand for consumer loans was given by Qdpre-TILSA = 14 -90P (in billions of dollars) and the supply of consumer loans by credit unions and other lending institutions was QSpre-TILSA = 6 + 70P (in billions of dollars). The TILSA now requires lenders to provide consumers with complete information about the rights and responsibilities of entering into a lending relationship with the institution, and as a result, the demand for loans increased to Qdpost-TILSA = 26 -90P (in billions of dollars). However, the TILSA also imposed “compliance costs” on lending institutions, and this reduced the supply of consumer loans to QSpost-TILSA = 2 + 70P (in billions of dollars). Based on this information, compare the equilibrium price and quantity of consumer loans before and after the Truth in Lending Simplification Act.(Note: Q is measured in billions of dollars and P is the interest rate). Instruction: Enter your responses for the equilibrium price in percentage terms, and round all responses to one decimal place. Equilibrium price (interest rate) before TILSA: percent Equilibrium quantity (in billions of dollars) before TILSA: $ billion Equilibrium price (interest rate) after TILSA: percent Equilibrium quantity (in billions of dollars) after TILSA: $ billion
Before:
Prior to the passage of the Truth in Lending Simplification Act and Regulation Z,
Demand for consumer loans was given by Qdpre-TILSA = 14 -90P (in billions of dollars)
Supply of consumer loans was given by QSpre-TILSA = 6 + 70P (in billions of dollars)
To get the equilibrium price we equate the Demand for consumer loans = Supply of consumer loans
14 -90P = 6 + 70P
90P + 70P = 14 - 6
160P = 8
P = 8 / 160 = 0.05
The equilibrium price in percentage = 0.05 * 100 = 5%
The equilibrium quantity can be found out by substituting equilibrium price in either Qdpre-TILSA or QSpre-TILSA
Substituting it in Qdpre-TILSA = 14 -90P
= 14 -90 (0.05)
= 14 - 4.5 = $ 9.5 billion
After:
After to the passage of the Truth in Lending Simplification Act and Regulation Z,
Demand for consumer loans was given by Qdpost-TILSA = 26 -90P (in billions of dollars)
Supply of consumer loans was given by QSpost-TILSA = 2 + 70P (in billions of dollars)
To get the equilibrium price we equate the Demand for consumer loans = Supply of consumer loans
26 -90P = 2 + 70P
90P + 70P = 26 - 2
160P = 24
P = 24 / 160 = 0.15
The equilibrium price in percentage = 0.15 * 100 = 15%
The equilibrium quantity can be found out by substituting equilibrium price in either Qdpost-TILSA or QSpost-TILSA
Substituting it in Qdpost-TILSA = 26 -90P
= 26 -90 (0.15)
= 26 - 13.5 = $ 12.5 billion
Summarizing:
My responses for the equilibrium price in percentage terms, and
rounding all responses to one decimal place.
Equilibrium price (interest rate) before TILSA: 5
percent
Equilibrium quantity (in billions of dollars) before TILSA: $ 9.5 billion
Equilibrium price (interest rate) after TILSA: 15 percent
Equilibrium quantity (in billions of dollars) after TILSA: $ 12.5 billion