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

1) If the economy is in recession, the CB will decrease its target for the interest rate by increasing the money supply. Another alternative is that the Gov decides to decrease taxes

2) According to the principal of monetary neutrality: In the long run the only effects of a decrease in the monetary supply is to reduce the agg price level...

3) Which of the following statements is false? According to the Solow's model, the contribution of the TFP to the GDP growth is computed as a residual, once we have subtracted the contribution physical & human capital.

4) If the nominal GDP is 1.6M, & real GD is 1.0M, the deflator is: 160

5) The nominal rate of unemployment around which the unemployment rate fluctuates is called the Natural rate of unemployment

6)

Understanding Key Concepts in International Trade

1. Trade Diversion and Trade Creation

Trade Diversion is a shift in the pattern of trade from low-cost world producers to higher-cost Custom Union or FTA members. It is often viewed as welfare-reducing for the world.

On the other hand, Trade Creation refers to the expansion in world trade that results from the formation of a preferential trade agreement.

2. Rules of Origin

Rules of Origin are the requirements that domestic producers or exporters must fulfill in order for their products to be considered as originating in a specific country and receive the benefits of tariff reductions. This measure is created to avoid trade deflection.

These rules define whether a good is eligible for duty-free treatment,... Continue reading "Understanding Trade Diversion, Rules of Origin, and Regional Trade Agreements" »

Determining Income Tax Expense

The formula to determine income tax expense is: Income before income tax expense (from the income statement) multiplied by the income tax rate.

Southern Corporation has a pretax accounting income of $575,000 and a taxable income of $560,000. The company's income tax rate is 35%. Income tax expense for the firm is: Income Tax Expense $201,250.

Discontinued Operations

The discontinued operations section of the income statement refers to the: disposal of a segment of a business.

Statement of Stockholders' Equity

The financial statement that reports the changes in all categories of equity during the period is called the: statement of stockholders' equity.

Comprehensive Income

Comprehensive income is not used to determine

Introduction

More Supermarket is a well-established chain with a strong reputation for quality and value. However, recent market research has shown that the brand has a particularly low rating among consumers aged between 18 and 25. This age group associates the brand with older generations and finds it to be outdated and unappealing.

In order to change young consumers' perception of More and increase sales among this age group, we propose the following concrete measures:

1. Partner with local universities and colleges

Young adults are busy and often on a tight budget. They appreciate convenience and value for money. One way to make More more appealing to this age group is to partner with local universities and colleges. This could involve offering... Continue reading "Increasing More Supermarket's Appeal to Young Adults" »

Despite all those advantages a wealth tax has, many countries abolished it because of the high cost of implementation and the little revenue it generated. There are high administrative costs and complex annual tax returns linked to the wealth tax, which make it less efficient. Also, sometimes it is quite difficult to measure wealth. Values can be misrepresented and in a lot of cases, it is not possible to know the real value of an asset until it is sold.

Furthermore, the argument of double taxation can be applied to the wealth tax. If wealth is accumulated from salaries, savings, or personal business income, double taxation is likely to happen since these flows in many cases have already been taxed. This argument, though, can be used for almost... Continue reading "The Pros and Cons of Wealth Tax: Efficiency, Double Taxation, and Capital Flight" »

One of the dynamic gains from trade is the diffusion of technological advance. Can you explain this gain and the impact on domestic companies? 10 points.

The dynamic gains refer to the relationship between trade and economic growth. The economy experiences increases in its stock of productive factors because a technological innovation helps a country's existing stock of factors to become more efficient. This means in our model the PPF has a growth.

The United States has used quotas to protect its domestic sugar industry. What has been the likely impact of these quotas on the world price of sugar (relative to the price that would exist under free trade)? 10 points.

Quotas restrict the amount of foreign competition in the marketplace, so that means... Continue reading "Understanding Trade Dynamics and Policies Impact" »

Monopoly

A monopoly exists when a firm is the sole seller of a product without close substitutes.

How Monopolies Arise

1. Natural Monopoly: Economies of scale allow only one firm to produce the entire output at the lowest average cost.
2. Control of Resources: Ownership or control of essential raw materials or unique production techniques.
3. Legal Protection: Patents, copyrights, and trademarks grant exclusive production rights.

Public Policies Against Monopoly

1. Competitive Legalisation: Banning anti-competitive pricing strategies like price fixing, predatory pricing, or price gouging.
2. Public Ownership: Government operation of a private monopoly.

Price Discrimination

Price discrimination occurs when a firm charges different prices for the same product to different... Continue reading "Monopoly, Monopolistic Competition, and Price Discrimination in Economics" »

MARKET VALUE PERFORMANCE MEASURES

MVA

Market Capitalization = (#shares * price per share) - Equity

MTBR

Measures how much value has been added for each dollar that shareholders have invested = MVOEQUITY / BVOEQUITY

MEASURING PROFITABILITY

EVA

Economic Value Add or Residual Income = The profit after deducting all costs including the cost of capital = After-tax operating income (after tax interest + NI) - (cost of capital * total capitalization at the start of the year) = ((1- tax rate)(interest expense) + NI) - (cost of capital)(long term debt + total equity beginning of year)

ROE

NI / Equity start

ROA

(1-tax rate) * interest expense + NI / Total Assets start

ROC

(1- tax rate) * interest expense + NI / LTD start + Equity start

MEASURING EFFICIENCY

How effectively... Continue reading "Financial Performance Measures and Analysis" »