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Econ 1-9B Dodgeball (debt & interest)Online version
E.4.5 Define budget debt and budget deficit and distinguish between the two. Explain the effects of both on the economy. (E)
GE.7.4 Explain how the use of fiscal policy affects budget deficits or surpluses and the national debt.
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Interest rates are influenced by ____ ____ , or how likely a borrower is to pay back a loan. If your [same] is low, that means you struggle to pay bills, & lenders will issue a high interest rate, because there is much risk.
2
If the nominal interest rate is a ball, you can calculate the real interest rate by removing the ____ from the ball. You need to remember this for the next economics test.
3
A 50% interest rate is either good or bad, depending upon if you are lending or borrowing. If you are the ____ , you will get 50% return rate, which is good. If you are the ____ , you are paying 50% of the principal, which is bad.
4
If nominal interest rate is 45, & you expect 20% inflation, you expect a 25 real return. But if inflation ends up at 10%, you get 35 real return. So when inflation is less than expected, this is good for ____ .
5
Unlike a car loan, interest rates on a business loan do not depend upon type or age of the business. Interest rates on a business loan depend upon how successful the business will be & upon ____ (something given to lender if borrower cannot pay).
6
Bank loans you $20K for a car, with a nominal interest rate of 20%. They expect inflation to be 10% & real interest rate to be 10%. But inflation turns out to be 15%, & real interest rate is 5%. ____ inflation is bad for lenders.
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Unlike business loans, interest rates for car loans do not depend upon the success of the car or collateral from borrower. Interest rates for car loans depend on the ____ and ____ of the car.
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The ____ is better off when the actual inflation ends up being higher than anticipated inflation. Inflation means there are more dollars in the economy, so prices (& usually wages) go up, but the amount of money owed stays the same.
9
The type of loan influences the interest rates of a loan. However, the type of ____ also influences the interest rate. e.g. a ____ with a low credit score is high risk, so their rate will be high, while a ____ with a high credit score is low risk.
10
We cannot calculate the real interest rate before the loan is issued. It must be calculated in _____ . This is because we do not know the future inflation rate. We wait until the loan is paid, determine inflation, then calculate real interest rate.
11
The ____ ____ is a set percentage of the principal, which the borrower agrees to pay in addition to paying back the principal.
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The ____ ____ is adjusted for inflation, so it is the amount of interest the lender is actually going to get once the loan is repaid.
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The amount a borrower takes from the lender is called the principal. The additional amount a borrower must repay, on top of the principal, is the ____ . This gives the lender an incentive to loan money to the borrower.
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The ____ ____ is not adjusted for inflation, because it is set before the loan is issued, & future inflation is unknown. [same] is how much you charge someone for the loan.
15
The amount a borrower takes from the lender is called the ____ . The additional amount a borrower must repay, on top of the [same], is the interest. The interest gives a lender the incentive to loan money to the borrower.
16
A bank charges you a 5% interest rate, & inflation is also 5%. The amount of money you repay the bank is more, but the ____ power of that money is the same.
17
Before Ben Stiller can start his gym & make money, he needs a building with large rooms, weights & treadmills, & personal trainers. These are called ____ ____ , & they are the reason businesses take loans from banks.
18
The type of loan & the type of borrower both influence the interest rate of a loan. But a third factor that influences interest rate is ____ , because a loan at 20%, with [same] at 30%, will cause the lender to lose money.
19
We need to borrow ____ from banks when purchasing expensive items, like buildings & vehicles. For everything else, we use the savings money in the bank & the cash in our pockets.
20
A high interest rate is bad for borrowers & good for lenders, but it is bad for the ____ in general. Because high interest rates discourage people from borrowing & expanding businesses.
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Chapter 4A Jumbled Words