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
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
