Understanding Loans, Interest Rates, and Unemployment

These flashcards cover key concepts related to loans, interest rates, and unemployment based on the lecture notes.

How does a bank make a loan to a borrower?

A bank takes deposits from customers and loans that money to borrowers at an interest rate.

What is nominal interest rate?

The nominal interest rate is the stated interest rate that does not take inflation into account.

What is real interest rate?

The real interest rate is the nominal interest rate adjusted for inflation.

What happens to your purchasing power if the inflation rate is higher than the interest rate on your deposit?

If inflation is higher than the interest rate, your purchasing power decreases.

What is frictional unemployment?

Frictional unemployment is the short-term unemployment that occurs when people are between jobs or entering the workforce.

What is structural unemployment?

Structural unemployment occurs when there is a mismatch between the skills of workers and the needs of employers.

What is cyclical unemployment?

Cyclical unemployment is caused by economic downturns or recessions when demand for goods and services decreases.

How do you calculate the unemployment rate?

The unemployment rate is calculated by dividing the number of unemployed individuals by the labor force and multiplying by 100.

What does inflation do to real interest rates?

Inflation reduces the real interest rates by decreasing the purchasing power of the earnings from those interest rates.

What age group is generally considered part of the labor force?

Individuals who are 16 years old and above, not in school full time, and not retired are considered part of the labor force.