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ECN 200 Test 2A
Economics - Elasticity and interest
| Question | Answer |
|---|---|
| Nominal interest rate | the advertised rate of interest |
| market risk | the risk that market value of an asset will change in an unanticipated way |
| real interest rate | interest rate after inflation expectations are considered |
| default risk | credit risk: the risk to the investor that the borrower won't pay |
| present value | the interest adjusted value of future payments |
| yield curve | the relationship between the rate of return earned on an investment and the length of time until the investment matures |
| deadweight loss | loss in societal welfare associated with production being too little or too great |
| inelastic | condition of demand where the percentage change in quantity is smaller than the percentage change in price |
| elasticity | the responsiveness of quantity to changes in price |
| perfectly inelastic | condition of demand where price changes have no effect on quantity |
| exclusivity | degree to which consumption of a good can be restricted by a seller to only those who pay for it |
| unit elastic | condition of demand where the percentage change in quantity is exactly equal to the percentage change in price. |
| consumer surplus | the value you get that's greater than what you paid for it; the value the consumer places on a good that's over the amount they pay for it |
| market failure | circumstance where the market outcome is not the economically efficient outcome |
| producer surplus | the money the firm gets that's greater than what you paid for it; the money the firm gets for a good that's over the amount they are willing to sell it for |
| total expenditure rule | if price and the amount you spend both go in the same direction, then demand is inelastic; if they go in opposite directions, then demand is elastic. |
| rivalry | the degree to which one person's consumption reduces the value of the good for the next person |
| income elasticity of demand | the responsiveness of quantity demanded of one good to a change in income |
| Write the formula for present value | PV=FV/(1+r)^n |
| In a supply and demand model for money, we typically use the ___ to look at the savers' behavior. | supply curve |
| In a supply and demand model for money, we typically use the ___ to look at the borrowers' behavior. | demand curve |
| If people (who used to neither borrow nor save) are now saving for their retirement, then this will cause ___ | the equilibrium interest rate to rise |
| When evaluating whether or not to make an investment, one should focus on the ____ because doing so takes into account anticipated inflation. | real interest rate |
| In the market for loanable money, an increase in the profitability of investments overall will be revealed in___ | an increase in the demand for loanable money |
| If the inflation rate is 3% and the real interest rate is 4%, then the nominal interest rate is ___ | 7% |
| When evaluating a business decision, an economist will often resort to the use of present value because___ | The investment occurs in one time period and the profits in another |
| If the interest rate is positive, the present value of $1000 to be received in ten years is | Less than $1000 |
| In the market for money, the demand curve is downward sloping because___ | the demand curve represents the borrower who will borrow less at a higher interest rates |
| Explain ceteris paribus (other things equal) | interest rates are lower for loans that are less risky than those that are more risky |
| A good that has few substitutes and takes up little income to purchase would have a ______ demand | Inelastic |
| If the price rises and the total amount consumers spend on the good falls, then demand must be____ | elastic |
| An increase in supply will decrease prices least when demand is ___ | elastic |
| Name brand apparel have many substitutes and can get very expensive, as a result their demand is likely to be ____ | elastic |
| When minor changes in supply seem to cause dramatic changes in price, you would conclude ____ | Demand is inelastic |
| Which of the following indicates the demand for a product is inelastic | the good is a small proportion of one's income |
| Economists suggest that a market can fail if ___ | production or consumption can harm an innocent third party |
Created by:
dellisari
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