CFA 2020 level i schwesernotes book 2

Contents Learning Outcome Statements (LOS) Reading 12: Topics in Demand and Supply Analysis Exam Focus Module 12.1: Elasticity Module 12.2: Demand and Supply Key Concepts Answer Key for Module Quizzes Reading 13: The Firm and Market Structures Exam Focus Module 13.1: Perfect Competition Module 13.2: Monopolistic Competition Module 13.3: Oligopoly Module 13.4: Monopoly and Concentration Key Concepts Answer Key for Module Quizzes Reading 14: Aggregate Output, Prices, and Economic Growth Exam Focus Module 14.1: GDP, Income, and Expenditures Module 14.2: Aggregate Demand and Supply Module 14.3: Macroeconomic Equilibrium and Growth Key Concepts Answer Key for Module Quizzes Reading 15: Understanding Business Cycles Exam Focus Module 15.1: Business Cycle Phases Module 15.2: Inflation and Indicators Key Concepts Answer Key for Module Quizzes Reading 16: Monetary and Fiscal Policy Exam Focus Module 16.1: Money and Inflation Module 16.2: Monetary Policy Module 16.3: Fiscal Policy Key Concepts Answer Key for Module Quizzes Reading 17: International Trade and Capital Flows Exam Focus Module 17.1: International Trade Benefits Module 17.2: Trade Restrictions Key Concepts Answer Key for Module Quizzes Reading 18: Currency Exchange Rates Exam Focus Module 18.1: Foreign Exchange Rates Module 18.2: Forward Exchange Rates Module 18.3: Managing Exchange Rates Key Concepts Answer Key for Module Quizzes Topic Assessment: Economics Topic Assessment Answers: Economics 10 Formulas 11 Copyright List of Pages 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 v vi vii viii 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 83 84 85 86 87 88 89 90 91 92 93 94 95 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 96 97 98 99 100 101 102 103 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 148 149 150 151 152 153 154 155 156 157 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 LEARNING OUTCOME STATEMENTS (LOS) STUDY SESSION The topical coverage corresponds with the following CFA Institute assigned reading: 12 Topics in Demand and Supply Analysis The candidate should be able to: a calculate and interpret price, income, and cross-price elasticities of demand and describe factors that affect each measure (page 1) b compare substitution and income effects (page 7) c distinguish between normal goods and inferior goods (page 7) d describe the phenomenon of diminishing marginal returns (page 8) e determine and interpret breakeven and shutdown points of production (page 10) f describe how economies of scale and diseconomies of scale affect costs (page 13) The topical coverage corresponds with the following CFA Institute assigned reading: 13 The Firm and Market Structures The candidate should be able to: a describe characteristics of perfect competition, monopolistic competition, oligopoly, and pure monopoly (page 19) b explain relationships between price, marginal revenue, marginal cost, economic profit, and the elasticity of demand under each market structure (page 22) c describe a firm’s supply function under each market structure (page 41) d describe and determine the optimal price and output for firms under each market structure (page 22) e explain factors affecting long-run equilibrium under each market structure (page 22) f describe pricing strategy under each market structure (page 42) g describe the use and limitations of concentration measures in identifying market structure (page 43) h identify the type of market structure within which a firm operates (page 44) The topical coverage corresponds with the following CFA Institute assigned reading: 14 Aggregate Output, Prices, and Economic Growth The candidate should be able to: a calculate and explain gross domestic product (GDP) using expenditure and income approaches (page 51) b compare the sum-of-value-added and value-of-final-output methods of calculating GDP (page 52) c compare nominal and real GDP and calculate and interpret the GDP deflator (page 53) d compare GDP, national income, personal income, and personal disposable income (page 54) e explain the fundamental relationship among saving, investment, the fiscal balance, and the trade balance (page 56) f explain the IS and LM curves and how they combine to generate the aggregate demand curve (page 58) g explain the aggregate supply curve in the short run and long run (page 62) h explain causes of movements along and shifts in aggregate demand and supply curves (page 63) i describe how fluctuations in aggregate demand and aggregate supply cause short-run changes in the economy and the business cycle (page 67) j distinguish between the following types of macroeconomic equilibria: long-run full employment, short-run recessionary gap, short-run inflationary gap, and short-run stagflation (page 67) k explain how a short-run macroeconomic equilibrium may occur at a level above or below full employment (page 67) l analyze the effect of combined changes in aggregate supply and demand on the economy (page 70) m describe sources, measurement, and sustainability of economic growth (page 72) n describe the production function approach to analyzing the sources of economic growth (page 73) o distinguish between input growth and growth of total factor productivity as components of economic growth (page 74) The topical coverage corresponds with the following CFA Institute assigned reading: 15 Understanding Business Cycles The candidate should be able to: a describe the business cycle and its phases (page 83) b describe how resource use, housing sector activity, and external trade sector activity vary as an economy moves through the business cycle (page 84) c describe theories of the business cycle (page 87) d describe types of unemployment and compare measures of unemployment (page 89) e explain inflation, hyperinflation, disinflation, and deflation (page 90) f explain the construction of indexes used to measure inflation (page 91) g compare inflation measures, including their uses and limitations (page 93) h distinguish between cost-push and demand-pull inflation (page 95) i interpret a set of economic indicators and describe their uses and limitations (page 97) ... price discrimination isn’t possible, the monopoly will charge a single price Price discrimination is described in more detail after we address single-price profit maximization To maximize profit,... effect is negative and the income effect is positive C the income effect is negative and the substitution effect is positive A good is classified as an inferior good if its: A income elasticity is... which ATC = MC) This equilibrium situation is illustrated in Figure 13.5 Figure 13.5: Equilibrium in a Perfectly Competitive Market Figure 13.6 illustrates that firms will experience economic