Investment Practice - Week One Lecture

Macroeconomics vs Microeconomics

The distinction where the former examines the economy as a whole using aggregate indicators like total output, inflation, and national employment (top-down), while the latter analyzes individual economic agents, such as specific consumers, firms, and markets (bottom-up).

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country's borders over a specified time period.

Gross National Product (GNP)

A measure of total economic output that focuses on the ownership of production factors by a country's citizens, regardless of physical location.

Aggregate Demand formula

$$AD = C + I + G + (X - M)$$

Consumption Function equation

$$C = \alpha + cY$$

Autonomous Consumption ($\alpha$)

The baseline level of spending that occurs even when disposable income is zero.

Marginal Propensity to Consume ($\text{MPC}$)

The proportion of extra disposable income that a household spends on goods and services rather than saving; given by $\text{MPC} = \frac{\Delta C}{\Delta Y}$.

Expenditure Multiplier equation

$$\text{Multiplier} = \frac{1}{1 - \text{MPC}}$$

Paradox of Thrift

The Keynesian idea that an increase in collective attempts to save can reduce total spending and aggregate demand, resulting in lower national income and potentially lower overall savings.

Fiscal Policy vs Monetary Policy

The difference between economic management via government spending and taxation ($G$ and $T$) versus management by a central bank using interest rates, money supply, and credit conditions.

Automatic Stabiliser

A mechanism built into the fiscal system, such as progressive income taxes or welfare benefits, that offsets economic fluctuations without explicit policy intervention.

Money Multiplier formula

$$\text{Money Multiplier} = \frac{1}{\text{Reserve Ratio}}$$

Quantity Theory of Money equation

$$M \times V = P \times T$$

Fisher Effect equation

$$i = r + E[\pi]$$

Structural Unemployment

A type of joblessness resulting from a persistent mismatch between the skills workers offer and the requirements of available jobs.

Purchasing Power Parity (PPP) formula

$$P_d = e \times P_f$$

Covered Interest Parity (CIP) formula

$$1 + i_d = \frac{F}{S} \times (1 + i_f)$$