Economics

[June 2013 CFA Level 1 Group]

Use this discussion thread to ask and discuss queries related to Economics Topic.

[Khairi Kamar]

Hi guys. I have just finished lecture 17 economics module. I was watching arif's video lecture on IS and LM curves and derivation of AD curves.

Somehow the video finished fairly early before arif finishes the final example. Is everybody experiencing the same thing? 

Arif, is it possible for you to finish that example 6 for all of us to learn from it? 

Many thanks,

p/s: I am loving your economics lectures so far!

[Arif Irfanullah]

Khairi,

I'm glad you are enjoying the videos.  

See  if you can work through the LM/IS example on your own. Also do the the practice problems.  

Let me know if you have issues.  If  you do, I will create a video responding to your  issues/questions.

In my opinion, this is the most complicated learning objective in the whole CFA Level I curriculum.  As long as you go over the example and the practice problems that is fine. Don't  get  hung  up on this material.  There are many other topics  which are much more important. 

[johncfa786]

Questions

Reading 13 - Example 12 from curriculum Please can you explain the effect of tax and also the effect of Quotas through practice prob 19

Reading 15 - Cost minimizing and profit maximizing through practice prob 26 27

Reading 16 - Please can you make it simpler to understand the pricing strategies in oligopoly - cournot assumption, nash equilibruim pp8 also stackelberg model

Reading 17 - Please advise on studying LM IS curve

[Arif Irfanullah]

Click on the link below for my video response to the questions posted under this discussion group.

https://drive.google.com/#folders/0B9YOJD1WEzZdTVlPN3l1SkZabHc

[haidriqbal]

Could anyone explain this question please?

If households are holding larger real money balances than they desire, which of the following is least likely?

A) The interest rate is higher than its equilibrium rate in the market for real money balances.

B) The opportunity cost of holding money balances will decrease.

C) The central bank must sell securities to absorb the excess money supply and establish equilibrium.

Your answer: A was incorrect. The correct answer was C) The central bank must sell securities to absorb the excess money supply and establish equilibrium.
If households’ real money balances are larger than they desire, the interest rate (opportunity cost of holding money balances) is higher than its equilibrium rate. Households will use their undesired excess cash to buy securities, bidding up securities prices and reducing the interest rate toward equilibrium. This market process does not require any action by the central bank.

 

I had assumed while answering this question that larger real money balances meant savings but after checking the answer I am not entirely sure as to what it means over here.

[Lalitha Sravanthi]

Can some one explain this problem

An investment of 3000 is made at beginning of each of next 7 years. given interest rate is 0.67%, value of this investment 11years from today ?

[haidriqbal]

Hello Lalitha 

I could be wrong but this is what I think needs to be done.

1)Set your calc to BGN mode because it is an annuity due. 
2) First calculate the FV at the beginning of year 7. N=7, PMT=3000, I/Y=.67%, PV=0, FV= CPT

3) The value I am getting is 21,570.4 rounded off to 21570

4) Next set your calc back to END mode.

5)I/Y= .67 N=5 PMT = 0, PV = 21570, FV= CPT

6) The answer I am getting is 22302 (rounded)

Where did you get this question?

[Lev Elgudin]

Is there a reason why you use N=5 for the second part? You only have 4 periods left after the first 7 periods. Also, it depends how you interpret the question. To me it sounds like the first pmt is made at the end of year 0 (which is the beginning of year 1) if it says "next 7 years". In this case, if you set calculator to BGN, then first pmt is done at the beginning of year 0. 

Lalitha, what is the correct answer?

Thank you,

Leo

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[haidriqbal]

The reason for using N=5 is because it is stated in the question that the payment is to be made at the beginning of each year not at the end (which is also the reason why I used BGN) but I understand your point and I think it is a pretty valid argument however the questions are always structured this way sadly.

Oh and I think some of you are replying directly to the email because your posts are not showing up in the group.

On Tuesday, 12 February 2013 21:13:47 UTC+5, June 2013 CFA Level 1 Group wrote:

[Lalitha Sravanthi]

the answer is 22154.32

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Regards
Lalitha Sravanthi Mutharaju 

[haidriqbal]

Could you tell us how you got to that answer please?

On Tuesday, 12 February 2013 21:13:47 UTC+5, June 2013 CFA Level 1 Group wrote:

[haidriqbal]

I think I realized my mistake. In the second part of the question N has to be 4 not 5 because the difference is of exactly .67%. I guess it will be 4 years because the question says "11 years from today" and not at the end of 11 years.

On Tuesday, 12 February 2013 21:13:47 UTC+5, June 2013 CFA Level 1 Group wrote:

[Lev Elgudin]

You actually were right about 5 year period.

Here is the correct solution:

FV-? (PV=0; PMT=3000; I/Y=0.67; N=7) -->FV= 21426.85

FV-? (PV=-21426.85; I/Y=0.67; N=5; PMT=0) -->FV=22154.33

I'm still trying to grasp the idea why it is 5 periods in the second part. If we do 5 periods, then the question should be 11 years from the first payment, not from today. Also note, that the first payment is not made in the beginning of the period, but rather at the end as in the simple case scenario (no need to switch the calculator to BGN mode).

Leo

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[Soban Memon]

can anyone plz answer the question attached. 

[fatima zahra Sammari]

Hi

I m trying to compute the discounted cash flow using a financial calculator but i keep getting an ERROR . Can someone clarify this matter

Thanks a bunch

On Tue, Feb 12, 2013 at 4:13 PM, June 2013 CFA Level 1 Group <june-2013-cfa...@googlegroups.com> wrote:

Use this discussion thread to ask and discuss queries related to Economics Topic.

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[Harpreet Marwah]

Curriculum Reading 16 Question 18

"In an industry comprised of three companies, which are small-scale manufacturers of an easily replicable product unprotected by brand recognition or patents, the most representative model of company behavior is:"

A. oligopoly. B. perfect competition. C. monopolistic competition."

 

Can someone explain why this is not an oligopoly since less number of players?

[Rohit Sachan]

I agree its little confusing question. 

Oligopoly has five properties.  

"1. There are a small number of potential sellers.

2. The products offered by each seller are close substitutes for the products offered by other firms and may be differentiated by brand or homogeneous and unbranded.

3. Entry into the market is difficult, with fairly high costs and significant barriers to competition.

4. Firms typically have substantial pricing power. 

5. Products are often highly differentiated through marketing, features, and other

non-price strategies."

 (Institute 171)

Institute, CFA. Level I 2013 Volume 2 Economics. John Wiley & Sons (P&T), 7/3/2012. <vbk:9781937537227#page(171)>.

point 1 and 2 are in question. just because companies are small , entry barrier is low, that leads to low pricing power. and that goes against Oligopoly. 

Regards,

Rohit Sachan 

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