EconMovies Episode 19- Interest Rates

Jacob Clifford introduces key economic concepts using the movie Dodgeball. He explains the basics of loans, interest rates, and how they vary based on risk and credit scores. The video discusses the implications of high interest rates and the difference between nominal and real interest rates, considering inflation. It emphasizes understanding these concepts for better financial decisions.

What is the principal amount in a loan?

• The interest rate applied to the loan

• The total amount repaid at the end of the loan

• The initial amount borrowed

• The total amount of interest paid over time

How do lenders adjust interest rates based on risk?

• They increase rates for borrowers with high credit scores

• They decrease rates for borrowers with low credit scores

• They decrease rates for borrowers with high credit scores

• They offer the same rate to all borrowers

Why might a 50% interest rate be considered bad for borrowers?

• It decreases the cost of loans

• It encourages more borrowing

• It increases the cost of loans and reduces spending

• It has no effect on the economy

What is the difference between nominal and real interest rates?

• Neither are adjusted for inflation

• Both are adjusted for inflation

• Real rates are adjusted for inflation, nominal rates are not

• Nominal rates are adjusted for inflation, real rates are not

If inflation is higher than expected, who benefits?

• Lenders benefit

• Borrowers benefit

• Neither benefits

• Both lenders and borrowers benefit

What happens to the real interest rate if actual inflation is lower than expected?

• The real interest rate becomes negative

• The real interest rate decreases

• The real interest rate remains the same

• The real interest rate increases

Why is it important to understand nominal and real interest rates in economics?

• To make informed decisions about lending and borrowing

• To predict future inflation accurately

• To ensure all loans have the same interest rate

• To avoid paying taxes on interest