Notes, summaries, assignments, exams, and exercises for Economics for University

Operating Leverage

The degree of operating leverage measures how sensitive a firm is to its fixed costs. It increases as fixed costs rise and variable costs fall. Operating leverage magnifies the effect of cyclicality on beta. That is, a firm with a given sales cyclicality will increase its beta if fixed costs replace variable costs in its production process.

Financial Leverage and Beta

Financial leverage is the sensitivity to a firm's fixed costs of financing.

The equity beta will always be greater than the asset beta with financial leverage: the equity beta of a levered firm will always be greater than the equity beta of an otherwise identical all-equity firm.

Extensions of the Basic Model

The Firm vs. the Project

Any project's cost of capital depends...

Fiscal Contract

= C+Output baj IS no camb cdo baja i Islm, baja Ms= sube i+no inicial en Y I spending dpnd en i. aument G=baja I Cambios Ms no afect price level short run LM comb i+Y mantien eq n financ mrk. Reduct consumr confidnc=left shift is curv I spending dpnd output= baja i Aggregate supply relation, current Plevel dpnd expectd pric level Fixed IS curve: baj i sube I CB=opn mkt purchase bonds=lm abajo Real supply=stock € medid n bns,no $ ISLM,baja G, baja gradual i+Y AS: baj output,baja unemployment,baja nominl wage,baja P. I no dpnd i =baja Ms no camb output CB compr bons y aument T y baja i Xpansionry: sube Pbons baja i Aument (c), ppcion € persns quiern en moned baja money multiplier Contract: bajn bons,sub i CB open market sale...

Understanding Purchasing Power Parity

General Idea

A country's currency value, with respect to another, is determined by its purchasing power.

Two Applications of Purchasing Power Parity

1. To determine the exchange rate parity of purchasing power and use it for comparisons of social accounting.
2. As a theory that explains the relationship between price levels and the exchange rate.

Factors Influencing Exchange Rate Fluctuations

Parity Adjustments

Persistent or fundamental imbalances in the balance of payments can lead to changes in monetary parity, or the external exchange value of a currency. Parity can be adjusted upwards (revaluation) or downwards (devaluation), depending on whether there is a surplus or a deficit.

Devaluation allows exporters to receive...

Reserve System

Market: The Intersection of Supply and Demand

• Job Market:

  This comprises job offers from organizations in a specific location and time. Increased organizational presence leads to higher employment rates.

• Human Resources Market:

  This encompasses individuals employed in a specific location and time, categorized by specialization (e.g., lawyers, engineers, skilled workers).

Therefore, the Human Resources Market reflects the Labor Market; when one is abundant, the other is in demand, and vice versa.

Recruitment: A Proactive Approach

Recruitment involves actively inviting individuals from various organizations to participate in the selection process. This ensures a wider pool of applicants, leading to better choices.

External Recruitment:

The Prisoner's Dilemma

The Prisoner's Dilemma is a concept in game theory based on two assumptions:

1. Each player has an incentive to choose an alternative that benefits them but hurts the other player.
2. When both players act in that way, they end up in a worse situation than if they had chosen different alternatives.

Dominant Strategy

A dominant strategy is the best decision an individual can make, regardless of the decision taken by the other player. Not all games have a dominant strategy; it depends on the game's payoff structure. In the Prisoner's Dilemma, a dominant strategy exists (to confess). As long as the two prisoners cannot agree *not* to confess (something that cannot be maintained while incommunicado), they will both act against each...

What is Economics?

Economics is the science of economic phenomena such as consumption, production, and distribution. The objective of economics is to explain and predict economic behavior.

Economic Theory

Economic theory is a set of general principles about the economy. It is divided into two main branches:

Microeconomics

Microeconomics analyzes the behavior of individual economic units such as families, businesses, workers, goods, prices, production companies, and consumption.

Microeconomic Problems:

• Consumption, production, and distribution in various market forms (perfect competition, imperfect competition, monopoly, oligopoly).
• Remuneration of production factors (rent, interest, wages, profit).

Macroeconomics

Macroeconomics studies the economy as...

The Great Depression: The Longest and Deepest Economic Downturn in American History

Causes of the Great Depression

In 1929, the prevailing economic theory held that the economy possessed self-correcting mechanisms that would prevent a severe depression. However, the Great Depression defied these expectations.

• Overproduction: Some economists believed the depression was caused by an excess of goods and services.
• Lack of Investment Opportunities: Others pointed to a decline in profitable investment opportunities.
• Technological Innovation: Joseph Schumpeter argued that the failure of entrepreneurs to introduce new products contributed to the depression.
• Stock Market Crash and Bank Panics: The stock market crash of 1929 and subsequent bank failures exacerbated

National Commission of Securities Market Website Analysis

On the website of the National Commission of Securities Market, in the short term, the company mainly used debts to credit institutions, and thus lowered its derivatives, leasing, and creditors for bonds and short-term loan obligations.

In the case of long-term debt, it is used primarily for the issuance of bonds, like borrowing to bonds/t with a nominal value of 700,000 in May 2007, of which 100,000 in nominal repurchase in 2008, obtaining a great benefit in repurchase of 36,327.

Another means of financing long-term loans has been to credit valued at 264,561 at the end of 2008. In the long term, another source of funding such as financial derivatives and leasing is also used.

Business Financing