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

Auditing

Checking and evaluating financial records.

Cash Flow

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Balance Sheet

A statement of the assets, liabilities, and capital of a business or other organization.

Bookkeepers

Individuals who record transactions in purchase ledgers and sales ledgers.

Income

The money a company receives from supplying goods or services.

Expenditure

The money that a company spends.

Fee

A charge for a service performed by a bank.

Premiums

Payments for an insurance policy.

Conglomerate

A multi-industry company. It is generally formed when one company expands by acquiring other firms.

Insurance

A method of protecting a person or firm against financial loss resulting from damage... Continue reading "A Glossary of Financial Terms for Beginners" »

Timeliness Principle

The Timeliness principle in accounting refers to the need for accounting information to be presented to users in time to fulfill their decision-making needs.

• Example: Users of accounting information must be provided financial statements on a timely basis to ensure that their financial decisions are based on up-to-date information. This can be achieved by reporting the financial performance of companies with sufficient regularity (e.g., quarterly, half-yearly, or annually) depending on the size and complexity of the business operations. Unreasonable delay in reporting accounting information to users must also be avoided.

Prudence Principle

Prudence requires that accountants should exercise a degree of caution in the adoption... Continue reading "Essential Accounting Principles" »

Chapter 4: The Federal Reserve's Responsibilities and Operations

Three Main Responsibilities of the Federal Reserve

1. Achieve full employment
2. Maintain price stability
3. Maximize economic growth

The Federal Reserve conducts the national monetary policy to achieve these goals.

Open Market Operations

Responsibilities:

• Control the money supply (MS)
• Set targets for MS growth and interest rate levels
• Influence the MS by buying or selling government securities (debt securities, Treasuries)

The Trading Desk

What they do: Purchase or sale of Treasuries

Impact on the economy:

• Money Supply: Purchasing government securities increases the money supply, while selling them decreases it.
• Interest Rates: An increased money supply puts downward pressure on interest rates, while

Understanding Income Inequality

Definition of Income Inequality

Income inequality refers to the phenomenon where households earn different shares of income within an economy.

Key Characteristics of Income Distribution

• Income is typically unequally distributed within economies.
• Inequality can provide incentives and rewards for productivity and innovation.

Measuring Income Inequality

The Lorenz Curve

The Lorenz curve illustrates the proportion of a nation’s income earned by a given percentage of the population. It typically lies below the line of complete equality because, for instance, the poorest 20% of the population will own less than 20% of the national income. The more curved the line, the greater the degree of inequality.

The Gini Coefficient

The... Continue reading "Income Inequality: Policies, Measurement, and Economic Impact" »

Why Currency Exchange Rates Change

If our currency is demanded (for example, because our products are demanded), the price of our currency would increase unless we increase the money supply. Conversely, if, for example, people hold assets in our currency but want to sell them, this would lead to depreciation.

Interest rate is the price of our money, because we sell bonds that yield a certain benefit. If we increase the interest rate, we make the bond more attractive. People would invest money in these bonds, and less money would circulate in the economy.

This internal use of interest rates to control inflation also has external consequences. High interest rates make bonds more attractive to foreign investors who would want to buy Euros (or the... Continue reading "Factors Affecting Currency Exchange Rates" »

Money Demand and Its Determinants

Money demand depends on the price level and the volume of transactions, which is defined as the number of goods and services transacted using money in one year.

Money demand can be represented as: P × T, where T = volume of transactions and P = average price level.

When the money market is in equilibrium, Md = Ms (Money Demand = Money Supply).

Formula: P = (V / T) × M

Assumptions:

1. This theory applies to short-run changes.
2. There is full employment in the economy.
3. The velocity of money and the volume of transactions remain constant.
4. The amount of barter trade remains constant.
5. M, V, and T change independently.

Changes in Velocity of Money (VOM):

• VOM increases: prices decrease = Deflation
• VOM decreases: prices increase =

Key Financial Ratios and Formulas

Understanding key financial ratios is crucial for assessing a company's performance and financial health. Below are common ratios and their formulas:

Accounts Receivable Turnover Ratio

Accounts Receivable Turnover = Sales & Service Revenue / Accounts Receivable Balance

Accounts Receivable Turnover in Days

Accounts Receivable Turnover in Days = 365 / Accounts Receivable Turnover

Inventory Turnover Ratio

Inventory Turnover = Cost of Goods Sold (CGS) / Inventory Balance

Inventory Turnover in Days

Inventory Turnover in Days = 365 / Inventory Turnover

Current Ratio

Current Ratio = Current Assets (CA) / Current Liabilities (CL)

Quick Ratio (Acid-Test Ratio)

Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current

Stakeholders in Business

Owners and Stockholders

• Have a monetary or nonmonetary interest in an organization or entity.
• Look for high profit, dividend, and long-term growth, as well as a positive corporate image.
• Example: Mr. XYZ is an owner of company ABC and expects a financial return.

Suppliers

• Companies build a number of small, loyal relationships with suppliers and associates.
• This enables each business to develop shared goals, visions, and strategies.
• Trade buyers and sellers can effectively collaborate to deliver the best value to end customers, which is beneficial to each side.
• Example: Carrefour Market is a distributor and supplier for Nestle products. Lulu aims for satisfactory transactions and revenue from purchases.

Employees

• Expect fair working

1. Market Segmentation: The Foundation of Promotion

The first step in the process of product promotion is Segmentation. Market Segmentation is the division of a broad market into smaller segments comprising individuals who share similar characteristics, needs, and interests, and show inclination towards similar products and brands.

This process involves creating small groups (segments) within a large market to bring together consumers who have similar requirements and interests. The individuals in a particular segment respond to similar market fluctuations and often require identical products. In simpler words, market segmentation can also be called Grouping.

Examples of market segments include:

• Kids form one segment.
• Males can be part of a similar

Social Needs:

• Economic aid to elderly people who aren't able to work.
• Enough food and clothes after losing a husband/wife who was the breadwinner.
• Treatment of illnesses.
• Financial support due to maternity or paternity.
• Financial support due to lack of employment.
• Home.
• Education.

Millennium Development Goals (MDGs):

1. Eradicate extreme poverty and hunger.
2. Achieve universal primary education.
3. Promote gender equality and empower women.
4. Reduce child mortality.
5. Improve maternal health.
6. Combat HIV/AIDS, malaria, and other diseases.
7. Ensure environmental sustainability.
8. Global partnership for development.