IMC Exam 2 5-6

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Author:
eriklnelson
ID:
140067
Filename:
IMC Exam 2 5-6
Updated:
2012-03-09 15:00:21
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    • = total risk of a security or investment
    • = systematic risk or market risk
    • = unsystematic risk or specific idiosyncratic risk
    • = the correlation coefficient
    • = the covariance of 2 investments
    • = risk of x times risk of y
    • Effectiveness of any diversification depends on the correlation between securities
    • - high negative correlation = good diversification
    • = investments systematic risk
    • = the investments total risk (systematic & unsystemtic)
    • = correlation coefficient between the returns of he investment and those of the market portfolios
    • Beta indicates whether the investment moves with the market
    • = risk of the market portfolio
    • r = expected rate of return of an investment
    • rf = risk free return
    • rm = market return
  1. elasticity
    • percentage change in quantity demanded (Q2-Q1)/Q1
    • /
    • percentage change in demand factor (P2-P1)/P1

    measures the sensitivity of demand or supply to changes in factors such as price and income
  2. price elasticity of demand
    • % change in quantity demanded
    • /
    • % change in price
  3. income elasticity of demand
    • % change in quantity demanded
    • /
    • % change in income
  4. cross-elasticity of demand
    • % change in quantity demanded
    • /
    • % change in price of other goods
  5. elasticity of supply
    • % change in quantity sold
    • /
    • % change in price
  6. demand may b e affected by
    substitutes and complements
  7. an increase in supply shifts the supply curve to the
    right, moving the equilibrium point along the demand curve
  8. MC=MR
    profits are maximized
  9. relationship between GDP, GNP and national income
    • GDP
    • minus NET PROPERTY INCOME FROM ABROAD
    • equals GNP
    • minus CAPITAL CONSUMPTION
    • equals NATIONAL INCOME (NET)
  10. Y = C + I + G + (X-M)
    • Y = national income
    • C = consumer expenditure
    • I = Investment expenditure
    • G = government expenditure
    • X = expenditure on our exports by foreigners
    • M = expenditure by us on imports
  11. C = a + bY
    • C = Consumption
    • a = level of autonomous consumption
    • b = marginal propensity to consume, the proportion of any increase in income, which results in increased expenditure
    • Y = national income
  12. autonomous consumption
    • keynes believed that the consumers demand for goods is made up of 2 elements
    • a = the level of goods they must consume to stay alive
    • b = discretionary consumption or marginal propensity to consume
  13. Keynes Simple Multiplier
    = 1/ (1-MPC)
  14. money multiplier
    1/reserve ratio
  15. philips curve shows
    relationship between inflation and unemployment
  16. inflation
    • -erodes the real value of nominal assets (cash bonds)
    • -results in price increases for real assets (index linked bonds, equities, property)
  17. possible causes of unemployment
    • -classical
    • -structural
    • -seasonal
    • -frictional
    • -keynesian
  18. MO, M1, M2, M3, M4
    • M0 = notes and coins in circulation (narrow money)
    • M1 = M0 +private instant access account deposits
    • M2 = M1 + private term deposits and CDs
    • M3 = M2 + institutional term deposits and CDs
    • M4 = M3 + private holdings of building society retail shares and deposits (broad money)

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