What Limits a Bank's Ability to Extend Loans

question 161

Essay

What limits a bank's ability to extend loans?

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Definitions:

Sectoral Shocks

Unexpected events that cause significant shifts in demand or supply in a specific sector of the economy, leading to changes in prices and output levels.

Frictional Unemployment

Unemployment due to the time workers spend in job search, usually short-term and occurring when individuals are transitioning between jobs.

Natural Rate

Often referred to as the natural rate of unemployment, it is the level of unemployment consistent with a stable rate of inflation, where the labor market is in equilibrium.

Cyclical Unemployment

Unemployment that results from business cycle fluctuations in economic activity, particularly downturns, rather than from changes in the workforce or skill mismatches.