Suppose that, prior to the passage of the Truth in Lending Simplification Act an

Question

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 = 6 -100P (in billions of dollars) and the supply of consumer loans by credit unions and other lending institutions was QSpre-TILSA = 4 + 100P (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 = 18 -100P (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 = 3 + 100P (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: Report your answers for the equilibrium price in percentage terms, and round all answers 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

Explanation / Answer

Pre-TILSA Qd = QS

Qdpre-TILSA = 6 -100P =   4 + 100P

P = 0.01

Equilibrium price (interest rate) before TILSA: 1% percent

Equilibrium quantity (in billions of dollars) before TILSA: $5 billion

Equilibrium price (interest rate) after TILSA: 7.5% percent

Equilibrium quantity (in billions of dollars) after TILSA: $10.5 billion

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