Equilibrium Interest Rate in the Market for Credit Card Borrowing

What is the equilibrium interest rate in the market for credit card borrowing?

Given the following data:

Interest rate: 2%, 4%, 6%, 8%, 10%

Transaction demand for money: $220

Asset demand for money: $300, $280, $260, $240, $220

Money supply: $460

Equilibrium Interest Rate:

The equilibrium interest rate in the market for credit card borrowing, where the demand and supply curves intersect, is 15% with a quantity of $600 billion loaned and borrowed.

Explanation:

The equilibrium interest rate in any given market for credit card borrowing occurs where the demand curve intersects the supply curve. When looking at various interest rates and the associated demand for and supply of financial capital, we can determine the equilibrium rate by finding the interest rate at which the amount of money people want to borrow equals the amount lenders want to supply.

In the case outlined by the details provided, the equilibrium interest rate is 15%. This is where the demand curve (D) and supply curve (S) intersect at point E, with a quantity of financial capital of $600 billion being loaned and borrowed. Interest rates that deviate from the equilibrium cause disparities. For example, at an interest rate of 21%, there is an excess supply, and at 13%, there is an excess demand.

Therefore, understanding the dynamics of demand and supply in the context of credit card borrowing is crucial for identifying the equilibrium interest rate in the market.