Final answer:
Usury laws capping interest rates at 35% would not impact markets with lower equilibrium rates, but if market rates exceed the cap, these laws could exacerbate a shortage in financial markets by creating a disincentive for lenders.
Step-by-step explanation:
If a usury law limits interest rates to no more than 35%, the likely impact on the amount of loans made and interest rates paid would be dependent on the current market interest rates. If the market rates are normally lower than the capped rate, the usury law will have no impact. However, if the equilibrium interest rate rises above 35%, then the cap would become binding. Under such circumstances, lenders would not be able to charge a rate higher than the cap, even if market conditions would otherwise allow it. This cap would effectively reduce the incentive for lenders to supply loans, likely leading to a shortage of loans because the quantity of loans would be lower than the equilibrium quantity in an uncapped market.
When usury laws are in place, they could either help or hinder a financial market depending on their strictness relative to the market conditions. A very high-interest cap, like 35%, might not impact markets where the equilibrium rate is much lower, whereas in cases where market rates exceed the cap, these laws could exacerbate the shortage by preventing rates from reaching equilibrium. This can lead to lenders withdrawing from the market or reducing the amount of capital they are willing to lend, thus worsening the shortage.