Notes, summaries, assignments, exams, and problems for Economy

Economic Efficiency in England (1700–2000)

This graph illustrates how economic efficiency in England improved significantly between 1700 and 2000. Initially, there was little improvement; however, with the onset of the Industrial Revolution, Total Factor Productivity (TFP)—a measure of how much an economy's output grows without directly increasing inputs such as labor or capital—began to grow steadily.

From the mid-19th century onward, growth became more consistent. After 1950, a major leap was observed, with rates exceeding 1% per year, reflecting significant technological progress and substantial improvements in efficiency.

The Managerial Revolution and the Visible Hand

Large companies of the 19th century stopped depending solely on the... Continue reading "Economic Efficiency and the Rise of Modern Management" »

Loanable Funds Theory of Interest Rate

The Loanable Funds Theory of Interest is also known as the Neo-Classical Theory of Interest. It was developed by economists Knut Wicksell, Bertil Ohlin, Gunnar Myrdal, and Professor Dennis Robertson. This theory explains the determination of the rate of interest with the help of both real and monetary forces. According to Prof. Robertson, "Interest is the price which equates the demand for and supply of loanable funds."

Meaning of Loanable Funds Theory

The loanable funds theory explains that the interest rate is determined by the forces of demand for loanable funds (from investors, consumers, and hoarders) and supply of loanable funds (from savings, bank credit, dishoarding, and disinvestment). Thus, interest... Continue reading "Loanable Funds Theory: Interest Rate Determination" »

Unit 13: Climate and Weather

• A climate is a set of weather conditions that is usual in a particular area.
• Soil moisture is the amount of water contained in a particular region's soil.
• Humidity is the amount or measurement of moisture in the air.
• Mulch is a material that is spread over the ground to protect plants and stop unwanted plants from growing.
• A long-range forecast is a prediction of weather conditions more than ten days in advance.
• Temperature is the measurement of heat and/or cold.
• Last frost is the last time during the year that the temperature gets low enough to kill plants in a particular region. It usually indicates the beginning of the growing season.
• Precipitation is rain, snow, and other forms of water that fall from the sky.
• A hardiness

Portfolio Investments and Dividends

Portfolio investments: Interest, dividends, or capital gains are taxed when you receive them; interest is taxed at ordinary rates. Dividends are taxed and so are corresponding capital gains. Qualified dividends: Investors must hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date (the first date on which a purchaser of the stock would not be eligible to receive a declared dividend). These are taxed at 0%, 15%, or 20%. Nonqualified dividends are taxed at ordinary rates.

• Interest from U.S. Treasury bonds is exempt from state tax, while interest from corporate bonds is not. Treasury bonds always pay interest periodically; corporate bonds may or may not.

Capital

Sustaining a Competitive Advantage

A competitive advantage must not only be created but also sustained over time. Sustaining a competitive advantage depends on several factors:

• Barriers to Imitation: Obstacles that prevent competitors from reproducing a competitive advantage. Examples include protected knowledge (patents, brands, etc.) and accumulated experience.
• Competitor's Ability to Imitate: The ease with which rivals can replicate a competitor's advantage.
• Industry Dynamism: As an industry undergoes more changes, competitive advantages tend to become more transitory.

Generic Competitive Strategies

The primary generic competitive strategies are Cost Leadership and Differentiation Strategy.

Cost Leadership Strategy

A company achieves a cost advantage... Continue reading "Achieving and Maintaining Business Success: Cost Leadership Strategies" »

Financial Markets and Institutions: Module 1

The Value of the Finance Industry

The finance industry plays a crucial role in the economy by facilitating the efficient allocation of capital and managing risk. Its value is generated through several key functions:

The Role of Secondary Markets

• Liquidity: Enabling assets to be quickly converted into cash.
• Price Information: Allowing investors to assess the value of investments.
• Low Transaction Costs: Facilitating cost-efficient trading.
• Risk Sharing: Distributing financial risks among investors.
• Economies of Scale: Enhancing efficiency in financial operations.

How Financial Markets Generate Value in the Economy

1. The Informational Role of Financial Markets

   Stock prices are set in financial markets, serving as

Microeconomics Practice Questions: Market Dynamics

Section 1: Time, Elasticity, and Substitutes

1. The time period over which supply and demand curves are drawn is important. If we increase the time period, we would expect the curves to become:

   • a. Demand and supply curves to become steeper
   • b. Demand and supply curves to become flatter (Increased time allows for greater adjustment, leading to higher elasticity.)
   • c. Demand curve to become flatter while the supply curve becomes steeper
   • d. The demand curve to become steeper while the supply curve to become flatter

2. Consider the market for Hershey’s chocolate. If the price of Godiva chocolate (a substitute) increased, we would expect the equilibrium price of Hershey’s chocolate to change by a larger percentage

Liquidity Preference Theory of Interest Rate

The Liquidity Preference Theory of Interest was introduced by J.M. Keynes in his book “The General Theory of Employment, Interest and Money.” Keynes rejected the classical view that interest is a reward for saving. According to him, interest is the reward for parting with liquidity.

Meaning of Liquidity Preference Theory

Liquidity Preference refers to the desire of people to hold money in liquid form for various purposes. People demand money because it is the most liquid form of asset and can be used anytime.

Determination of Rate of Interest

According to Keynes, the rate of interest is determined by the interaction between Liquidity Preference (Demand for Money, $M_d$) and the Supply of Money ($M_... Continue reading "Keynesian Theory of Interest Rate Determination" »

Defining Financial Management and Its Objectives

Definition of Financial Management

Financial Management is the strategic planning, organizing, directing, and controlling of a firm's financial activities. It involves applying general management principles to the financial resources of the enterprise to ensure the efficient acquisition and optimal utilization of funds to achieve the firm's overall goals.

It answers three fundamental questions for the business:

• Investment Decision (Deployment): Where should the firm invest its funds for the long term? (Capital Budgeting)
• Financing Decision (Procurement): Where should the firm raise the required funds, and in what proportion? (Capital Structure)
• Dividend Decision (Distribution): How should the firm

Understanding International Development

International development refers to the effort to improve the economic, social, and political conditions of lower-income countries. It recognizes that countries differ not only in income levels but also in health, education, and institutional strength. Development therefore goes beyond economic growth and includes poverty reduction and human well-being, as reflected in global frameworks such as the UN Sustainable Development Goals.

International Political Economy (IPE) Perspectives

Different IPE approaches define the development challenge in distinct ways:

• Economic Liberalism: Argues that underdevelopment results mainly from poor domestic policies and weak institutions, promoting free trade, open markets,