Problem
Suppose you live in a low-income community, and that the government wants to help you by granting you the right to borrow $120 at a subsidized annual interest rate of 6 percent. Explain which of the following two strategies you would choose and why: (i) invest the $120 in your family business to obtain an annual net return of 15 percent while incurring a cost of $16, or (ii) deposit the money in a local commercial bank with an annual interest rate of 2.5 percent. What does this simple numerical exercise reveal about the design of government interventions to assist poor individuals' businesses?