ECON 203 PRODUCTION COST THEORY AND FIRM BEHAVIOR FINAL PAPER WORKBOOK 2026

ECON 203 PRODUCTION COST THEORY
AND FIRM BEHAVIOR FINAL PAPER
WORKBOOK 2026

◉ saving
Answer: selling the right to use your money


◉ borrwing
Answer: buying the right to use money


◉ the price to use money
Answer: interest rate


◉ savers and interest rate
Answer: the price for letting the bank use their money is the IR


◉ when the IR is higher
Answer: there is a higher incentive to save, making the slope of the
supply curve get bigger


◉ Borrowers and IR rate

,Answer: when the IR rate is high, borrowers have to pay back more,
downwardly sloping the demand curve


◉ Intertemporal decision
Answer: when consumers delay consumption because the IR is high
right now, but they expect it go down


◉ rate of return must be
Answer: higher than the cost of borrowing plus interest rate


◉ determinants of savings
Answer: wealth, current/future economic conditions, uncertanity,
borrowing constraints, social welfare, culture


◉ determinants of investment
Answer: future profitability, uncertainty, changes in gov deficit


◉ Interest rate in real life
Answer: length of time, degree of risk


◉ credit spread
Answer: interest rate - risk free rate

, ◉ The yield curve
Answer: interest rate + term to maturity


◉ bond
Answer: basically a loan, you are lending an institution money


◉ coupon
Answer: principal + interest


◉ y.c
Answer: equilibrium result of loanable funds


◉ short term rates
Answer: influenced by federal reserve monetary policy


◉ long term rates
Answer: reflects expectation of future inflation, growth/risk


◉ term premium
Answer: compensation for locking up money and facing
inflation/interest rate risk