Evaluating Economic Interpretations of Credit Market Data
A government agency observes that a new program offering low-interest loans to aspiring entrepreneurs has a very low application rate. Two economists offer different interpretations of this fact:
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Economist A argues: "The low demand for these loans is clear evidence that a lack of affordable credit is not a significant barrier for entrepreneurs in this economy. If they had profitable business ideas, they would have taken advantage of this opportunity."
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Economist B argues: "This observation alone is inconclusive. The low application rate might be caused by other significant, non-price barriers that function as credit constraints, such as overly complex application forms, high collateral requirements, or a general distrust of government programs."
Analyze both interpretations. Which economist presents a more sound line of reasoning for understanding the situation? Justify your choice by explaining the potential flaws in the other economist's argument and describe what kind of additional evidence could help determine the true reasons for the low loan uptake.
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Social Science
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The Economy 1.0 @ CORE Econ
CORE Econ
Economics
Economy
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
Evaluation in Bloom's Taxonomy
The Economy 2.0 Microeconomics @ CORE Econ
Cognitive Psychology
Psychology
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