Final answer:
Usury refers to the practice of charging illegal or excessively high interest rates on loans. Usury laws that limit interest rates, such as a 35% cap, can lead to lower borrowing costs and may reduce the number of loans made. The impact of these laws depends on whether the interest rate cap is above or below market rates.Hence, the correct answer is option D.
Step-by-step explanation:
Usury most nearly means lending money at illegal interest rates that are considered unreasonably high. Usury laws are designed to protect consumers from predatory lending by setting an upper limit on the interest rates that can be charged. For example, if a usury law caps interest rates at no more than 35%, this would likely lower the cost of borrowing for consumers but could also reduce the amount of loans made, as lenders might be less willing to make loans at a lower interest rate.
Lenders who typically provide loans with high interest rates might find these laws restrictive and possibly reduce the number of high-interest loans they issue. However, the impact of such laws can be complex, depending on whether the cap is binding or non-binding relative to market interest rates.
In a market where the usury cap is non-binding (i.e., the market interest rates are below the cap), the law would not have a significant effect unless the market rates rise above the cap. On the other hand, in a market with a binding cap, where interest rates would naturally be higher, the law could prevent excessively high rates, potentially reducing the volume of loans made by lenders who rely on higher rates to offset their risks.