Economics materia description presentation.pdf

Economic

1. Economics

2. Economics



Economics is the science that deals with the allocation of
limited resources to satisfy unlimited human wants.

3. Economics
To produce goods and services, we need resources, including
labor, managerial talent, capital, and raw materials. Resources
are said to be scarce because their supply is limited.

The scarcity of resources means that we are constrained in
the choices we can make about the goods and services we
produce, and thus also about which human wants we will
ultimately satisfy. That is why economics is often described as
the science of constrained choice.

4. Branches Of Economics
Microeconomics
Studies the economic behavior of individual economic decision
makers, such as a consumer, a worker, a firm, or a manager. It also
analyzes the behavior of individual households, industries, markets,
labor unions, or trade associations.
Macroeconomics
how an entire national economy performs. A course in
macroeconomics would examine aggregate levels of income and
employment, the levels of interest rates and prices, the rate of
inflation, and the nature of business cycles in a national economy.

5. Economics Questions
• What goods and services will be produced, and in what
quantities?

• Who will produce the goods and services, and how?

• Who will receive the goods and services?

6. Macroeconomics
Macroeconomics examines economies at the aggregate
(international, national, regional) level.

Some aspects of macroeconomics are about comparing two
aggregate economies at the same time.

7. What Is GDP?
Gross Domestic Product (GDP)‟s technical definition is the
total value of the production and consumption of all the goods
and services of the country.

8. GDP Formula




GDP = Consumer Spending (C) + Investment (I) + Government
Spending (G) + (Exports (X) - Imports (M)).

9. GDP Formula
Consumer spending is the sum of expenditures by households
on durable goods, nondurable goods, and services. Examples
include clothing, food, and health care.


Investment is the sum of expenditures on capital equipment,
inventories, and structures. Examples include machinery,
unsold products, and housing.

10. GDP Formula
Government spending is the sum of expenditures by all
government bodies on goods and services. Examples include
salaries to government employees.


Net exports equals the difference between spending on
domestic goods by foreigners and spending on foreign goods
by domestic residents. In other words, net exports describes
the difference between exports and imports.

11. What Does GDP Indicates?
This number is important because it gives an indication of how
successfully society is addressing the scarcity problem.

A larger gross domestic product, there are more goods and
services that can be used to satisfy unlimited wants and
needs.

12. What is excluded in GDP?
Intermediate goods.

Transfer payments.

Home Production.

Pollution/environmental damage.

Illegal Goods.

13. Types Of GDP
Nominal GDP
Is the sum value of all produced goods and services at
current prices.


Real GDP
Is the sum value of all produced goods and services at
constant prices (price from a specified base year).

14. GDP Deflator
Is the ratio of nominal GDP to real GDP for a given year.

The GDP deflator captures changes in the price level.

15. What Is GNP?
Gross National Product (GNP)‟s technical definition is the
combined value of all the final goods and services produced in
a country during an accounting year, including net factor
income from foreign countries.

16. GNP Formula




GNP = GDP + Net factor income from abroad (difference
between income earned in foreign countries by residents of a
country and income earned by foreign nationals domestically).

17. GDP Vs. GNP
GDP is the sum value of all goods and services
produced within a country.
GNP is the sum value of all goods and services produced by
permanent residents of a country regardless of their location.

GDP of a particular country, production by foreigners within
that country is counted and production by nationals outside of
that country is not counted.
For GNP, production by foreigners within a particular country is
not counted and production by nationals outside of that
country is counted.

18. GDP Vs. GNP
GDP is the value of goods and services produced within a
country.
GNP is the value of goods and services produced by citizens of
a country.

19. Inflation
Inflation is a state of persistent rise in prices.

The Consumer Price Index (CPI) is the official measure of
inflation.

The CPI can be thought of as an imaginary „basket‟ of selected
goods and services bought by a typical capital city household.

20. Inflation
The CPI is merely a measure of the changes in the price of this
basket of goods and services.

21. CPI Groups
Food.
Clothing.
Housing.
Education.
Transportation.
Tobacco.
Health and Personal Care.
Household Equipment and Operation.

22. Demand Pull Inflation
occurs when Aggregate demand increases at a rate faster
than the capacity of the economy to produce goods and
services. This increase competition for goods and services
drives up their prices.

23. Source Demand Pull Inflation
Full employment causes labour shortages, employers thus bid
up wages to attract labour. The increased income, transpires
into increased consumption causing Aggregate Demand to
rise.

High levels of foreign investment increases employment,
income, consumptions and ultimately Aggregate Demand.

Too much credit in the economy. A relaxed monetary policy
leads to a reduction in interest rates leading to an increase in
Aggregate Demand and thus prices.

24. Cost Push Inflation
Cost Push Inflation occurs when prices are pushed up by rising
costs to producers who compete with each other for
increasingly scarce resources. The increased costs are
passed onto consumers.

25. Source Cost Push Inflation
Any input may become a major cost to business e.g.: wage
increases lead to higher production costs.

26. Unemployment




People able, available and willing to find work and actively
seeking work – but not employed

27. Types Of Unemployment
Seasonal
Regular seasonal changes in employment / labour demand
as:

Construction.

Tourism.

Agriculture.

28. Types Of Unemployment
Frictional
Transitional unemployment due to people moving between
jobs: Includes people experiencing short spells of
unemployment.

Includes new and returning entrants into the labour market
Imperfect information about available job opportunities can
lengthen the period of someone‟s job search

29. Structural
Arises from the mismatch of skills and job opportunities as the
pattern of labour demand in the economy changes.

Often involves long-term unemployment.

Prevalent in regions where industries go into long-term
decline.

30. Effect Of Unemployment
Loss of income.
Fall in real living standards.
Increased health risks.
Fall in demand for goods and services.
Fall in revenue from income tax and taxes on consumer
spending.
Fall in profits – reduction in revenue from corporation tax.
May lead to rise in government borrowing.

31. Policies to Reduce Unemployment
1-Demand side Policies to Reduce Unemployment.
Lower interest rates (a monetary policy stimulus).

A lower exchange rate (helps exporters).

Lower direct taxes (fiscal stimulus to spending power).

Government spending on major capital projects (e.g.
improving the transport infrastructure).

32. Policies to Reduce Unemployment
2-Supply-side policies to reduce Unemployment
Increased spending on education & training including an
emphasis on “lifetime-learning”)

Improved flows of information on job vacancies.

33. 33
Balance of Payments
The Balance of Payments
Is the statistical record of a country’s international transactions
over a certain period of time presented in the form of double-
entry bookkeeping.


Why is it useful to examine a country’s BOP?
The BOP provides detailed information about the supply and
demand of the country’s currency.

34. 34
Balance Of Payment Accounts
A.Current Account
A.Net exports/imports goods services (Balance of Trade)
B.Net Income (investment income from direct portfolio investment plus employee
compensation
C.Net transfers (sums sent home by migrant abroad)
B. Capital Account
Capital transfers related to purchase and sale of fixed assets such as real estate
C. Financial Account
A.Net foreign direct investment
D.Net Errors and Omissions
Missing data such as illegal transfers
E. Reserves and Related Items
Changes in official monetary reserves including gold and foreign exchange reserves

35. 35
What if…?
BOP shows surplus:
D > S for that currency.
Allow currency value to increase,
Or accumulate foreign reserves.

BOP shows deficit:
S > D for that currency.
Devalue currency,
Or use official reserves to support currency.

36. 36
Balance of Payments
Fixed Exchange Rate.

Floating Exchange Rate.

Managed Floats.

37. Fiscal Policy
If AD is too little, unemployment arises.

If AD is too much, inflation arises.

If the market cannot correct these imbalances, then the
intervention of government must.

38. Fiscal Policy




The use of government taxes and spending to alter
macroeconomic outcomes.

39. Fiscal Policy
Government can alter AD by
Purchasing more or fewer goods and services.

Raising or lowering taxes.

Changing the level of income transfers.

40. Fiscal Policy and the Economy
The total level of government spending can be changed to help
increase or decrease the output of the economy

Expansionary Policies: Policies that try to increase the output
of the economy
Contractionary Policies: Policies that try to decrease the
output of the economy

41. Expansionary Policies
During a contraction or recession, the government can do two
things:

1.Decrease Taxes
Or
2.Increase Spending

42. Decreasing Taxes
1.Gives people more money to spend
2.More money = more demand
3.More demand = more production
4.More production = more jobs
5.More jobs = more demand etc. etc.

43. Increase Spending
1.Increases demand for goods
2.More demand = more production
3.More production = more jobs
4.More jobs = more demand etc. etc.

44. Contractionary Policies
During a period of excessive inflation (during a period of
expansion), the government can do two things:

1.Increase Taxes
Or
2.Decrease Spending

45. Increase Taxes
1.People have less money to spend
2.Less money = less demand
3.Less demand = lower inflation

46. Decrease Spending
1.Less money in economy
2.Less money = less demand
3.Less demand = lower inflation

47. Problem with Fiscal Policy
1.It is unpopular to raise taxes or cut government spending.
So, elected officials worried about re-election rarely do
either.

2.If the government cuts taxes, they have less money to
spend or they go into debt.

48. Monetary Policy
Monetary policy regulates the money supply and interest
rates to control inflation and stabilize the economy to
achieve national economic goals. This policy affects the
cost of and availability of money and credit which in turn
influences how much is spent by individuals and
businesses.

The goal is to find the right balance between the cost of
money and supply and demand — the right balance of
economic growth.

49. Monetary Policy
There are two types of monetary policy:

Expansion Monetary policy is the policy of increasing the money
supply and reducing interest rates to stimulate the economy

Contractionary Monetary policy. is the policy of decreasing the
money supply and increasing interest rates to dampen the
economy

50. DEMAND
SUPPLY AND DEMAND 50

51. Demand
Quantity demanded
is the amount of a good that buyers are willing and able to
purchase

Demand
is a full description of how the quantity demanded changes as
the price of the good changes.
51 SUPPLY AND DEMAND

52. Catherine’s Demand Schedule and
Demand Curve
Copyright © 2004 South-Western
Price of
Ice-Cream Cone
0
2.50
2.00
1.50
1.00
0.50
1 2 3 4 5 6 7 8 9 10 11 Quantity of
Ice-Cream Cones
$3.00
12
1. A decrease
in price ...
2. ... increases quantity
of cones demanded.
52 SUPPLY AND DEMAND

53. Market Demand is the Sum of Individual Demands
53 SUPPLY AND DEMAND

54. Law of Demand
The law of demand states that
the quantity demanded of a good falls when the price of the
good rises, and vice versa, provided all other factors that
affect buyers‟ decisions are unchanged
54 SUPPLY AND DEMAND

55. “provided all other factors … are
unchanged”
That‟s an important phrase in the wording of the Law of
Demand
The quantity demanded of a consumer good such as ice
cream depends on
The price of ice cream
The prices of related goods
Consumers‟ incomes
Consumers‟ tastes
Consumers‟ expectations about future prices and incomes
Number of buyers, etc
55 SUPPLY AND DEMAND

56. Why Might Demand Increase?
How can we explain the
difference in Catherine‟s
behavior in situations A
and B?
Why does she consume
more in situation B at
every possible price?
Quantity Demanded
Price Situation A Situation B
0.00 12 20
0.50 10 16
1.00 8 12
1.50 6 8
2.00 4 6
2.50 2 4
3.00 0 2
Price
Quantity Demanded
56 SUPPLY AND DEMAND

57. Shifts in the Market Demand Curve
… are caused by changes in:
Consumer income
Prices of related goods
Tastes
Expectations, say, about future prices and prospects
Number of buyers

57 SUPPLY AND DEMAND

58. Shifts in the Demand Curve
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream Cones
Increase
in demand
Decrease
in demand
Demand curve, D
3
Demand
curve, D
1
Demand
curve, D
2
0
58 SUPPLY AND DEMAND

59. Shifts in the Demand Curve
Consumer Income
As income increases the demand for a normal good will
increase
As income increases the demand for an inferior good will
decrease
Prices of Related Goods
When a fall in the price of one good reduces the demand for
another good, the two goods are called substitutes
When a fall in the price of one good increases the demand for
another good, the two goods are called complements
59 SUPPLY AND DEMAND

60. SUPPLY
SUPPLY AND DEMAND 60

61. SUPPLY
Quantity supplied
Is the amount of a good that sellers are willing and able to sell

Supply
is a full description of how the quantity supplied of a
commodity responds to changes in its price
61 SUPPLY AND DEMAND

62. Ben’s supply schedule and
supply curve
62
Supply curve
Price of
Ice-cream cone
Quantity of
Cones supplied
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
0 cones
0
1
2
3
4
5
0 12 10 11 9 1 2 3 4 5 6 7 8
Quantity of Ice-Cream Cones
$3.00
2.50
2.00
1.50
1.00
0.50
Price of
Ice-Cream
Cones
1. An increase
in price . . .
2. . . . increases quantity
of cones supplied.

63. Market supply and individual supplies
63
Price of ice-cream
cone
Ben Jerry Market
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
0
0
1
2
3
4
5
+ 0
0
0
2
4
6
8
= 0
0
1
4
7
10
13

64. Market supply and individual
supplies
64
S
Ben
0 12 10 11 9 1 2 3 4 5 6 7 8
Quantity of Ice-Cream Cones
$3.00
2.50
2.00
1.50
1.00
0.50
Price of
Ice
Cream
Cones
Ben’s
supply
S
Jerry
0 1 2 3 4 5 6 7
Quantity of
Ice-Cream Cones
$3.00
2.50
2.00
1.50
1.00
0.50
Price of
Ice
Cream
Cones
Jerry’s
supply
+ =
S
Market
0 18 2 4 6 8 10 12 14 16
Quantity of Ice-Cream Cones
$3.00
2.50
2.00
1.50
1.00
0.50
Price of
Ice
Cream
Cones
Market
supply

65. SUPPLY AND DEMAND 65
Law of Supply
The law of supply states that, the quantity supplied of a good
rises when the price of the good rises, as long as all other
factors that affect suppliers‟ decisions are unchanged

66. Shifts in the Supply Curve: What causes them?
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream Cones
0
Increase
in supply
Decrease
in supply
Supply curve, S
3
curve,
Supply
S
1
Supply
curve, S
2
66 SUPPLY AND DEMAND

67. SUPPLY AND DEMAND 67
Supply Shift
How could Ben‟s supply
have increased?
Ben’s Supply Schedule
Price ($) Quantity Supplied
Before After
0.00 0 0
0.50 0 1
1.00 1 2
1.50 2 3
2.00 3 4
2.50 4 5
3.00 5 6
Ice-cream
cone
It’s cost ($)
Before After
1
st
0.75 0.45
2
nd
1.35 0.85
3
rd
1.75 1.45
4
th
2.30 1.95
5
th
2.85 2.45
6
th
3.10 2.90
Anything that reduces
production costs, shifts
supply to the right.

68. Shifts in the Supply Curve…
… are caused by changes in
Input prices
Technology
Number of sellers (short run)
The market supply will shift right if
Raw materials or labor becomes cheaper
The technology becomes more efficient
Number of sellers increases
68 SUPPLY AND DEMAND

69. EQUILIBRIUM
SUPPLY AND DEMAND 69

70. Interaction of demand and supply
We have seen what demand and supply are
We have seen why demand and supply may shift
Now it is time to say something about how buyers and sellers
collectively determine the market outcome
To do this, we assume equilibrium
SUPPLY AND DEMAND 70

71. Equilibrium
We assume that the price will automatically reach a level at
which the quantity demanded equals the quantity supplied
SUPPLY AND DEMAND 71

72. At $2.00, the quantity demanded is
equal to the quantity supplied!
SUPPLY AND DEMAND TOGETHER
Demand Schedule Supply Schedule
72 SUPPLY AND DEMAND

73. Equilibrium of supply and demand
73
Supply
0 12 10 11 9 1 2 3 4 5 6 7 8
Quantity of Ice-Cream Cones
$3.00
2.50
2.00
1.50
1.00
0.50
Price of
Ice-Cream
Cones
Equilibrium
Demand
Equilibrium
price
Equilibrium
quantity

74. Markets Not in Equilibrium
Price of
Ice-Cream
Cone
0
Supply
Demand
(a) Excess Supply
Quantity
demanded
Quantity
supplied
Surplus
Quantity of
Ice-Cream
Cones
4
$2.50
10
2.00
7
74 SUPPLY AND DEMAND

75. Markets Not in Equilibrium
Surplus
When price exceeds equilibrium price, then quantity supplied
is greater than quantity demanded
There is excess supply or a surplus
Suppliers will lower the price to increase sales, thereby moving
toward equilibrium
75 SUPPLY AND DEMAND

76. Markets Not in Equilibrium
Price of
Ice-Cream
Cone
0 Quantity of
Ice-Cream
Cones
Supply
Demand
(b) Excess Demand
Quantity
supplied
Quantity
demanded
1.50
10
$2.00
7 4
Shortage
76 SUPPLY AND DEMAND

77. Markets Not in Equilibrium
Shortage
When price is less than equilibrium price, then quantity
demanded exceeds the quantity supplied
There is excess demand or a shortage
Suppliers will raise the price due to too many buyers chasing
too few goods, thereby moving toward equilibrium
77 SUPPLY AND DEMAND

78. Equilibrium
Law of supply and demand
The price of any good adjusts to bring the quantity supplied
and the quantity demanded for that good into balance
78 SUPPLY AND DEMAND

79. Stock Market Basics

80. What are some types of markets?
A market is a method of exchanging one asset
(usually cash) for another asset.
Physical assets vs. financial assets
Spot versus future markets
Money versus capital markets

81. How Do You Make Money in the Market?
•Stock Price Goes Up and You Sell (Buy low, sell high)

•Dividends.

82. Who are the providers (savers) and
users (borrowers) of capital?
•Households: Net savers
•Non-financial corporations: Net users
(borrowers)
•Governments: Net borrowers
•Financial corporations: Slightly net borrowers,
but almost breakeven
•Commercial Banks and Investment Banks

83. Commercial Banks (such as: Al-Ahly Bank, Misr Bank, HSBC….)
•A Commercial bank is also known as business bank. It is a bank that provides
checking accounts, savings accounts, and money market accounts and that accepts
deposits from public.

Investment Banks (such as: EFG Herms)
•An investment bank is a financial institution that raises capital, trades securities
(Stocks & Bonds) and manages corporate mergers and acquisitions.
•Another term for investment banking is corporate finance.
•Investment banks work for, and profit from, companies and governments, by raising
money through issuing and selling securities in capital markets (both equity and
long - term debts) and providing advice on transactions such as mergers and
acquisitions.

84. The global financial market for short-term borrowing
and lending. It provides short-term liquidity (short–term
debt) funding for the global financial system. The
money market is where short-term obligations such as
Treasury bills, commercial paper and bankers'
acceptances are bought and sold.

85. A market for securities (long-term debt or equity),
where business enterprises (companies) and
governments can raise long-term funds. It is defined as
a market in which money is provided for periods longer
than a year. The capital market includes the stock
market (equity securities) and the bond market (long–
term debt).

86. What are Stocks?
•Stock is ownership in a publicly traded company.
•Stock is a claim on the company‟s assets and earnings.
•The more stock you have, the greater your claim as an
owner.

87. Why Invest in Stocks?
•The return on investments in the market are 3-4 times the
annual return of inflation, savings and treasury bonds
•You can make good money in the market
•But, You can loose money too……

88. What Causes Stock Prices to Change?
•Supply and Demand
•Earnings and Expectations
•Sentiments and Attitudes
•Economic Indicators
•Follow the Leader (volume)
•Anything 

89. How Should I Invest?
•What are your financial goals?
•What is your risk tolerance?
•Return rises with risk
•Do you want to actively manage your portfolio?
•Diversify
•Don‟t put all your eggs in one basket!

90. Where do I Start?
•Learn the Basics
•Setup a brokerage account
•Full-service vs. discount?
•The Internet provides a variety of discount brokerage firms
(do it yourself)
•Fees, commission, minimum balance
•Keep it simple as you learn
•Learn about other investment vehicles

91. Types of Stock
Common Stock – most common form of stock.
•One vote per share
•Dividends are not guaranteed


Preferred Stock
•Fixed dividend
•May not include voting
•Companies may customize other “classes” of stock.

93. Ticker Symbols
All securities traded on the stock exchange have a ticker
symbol
•Microsoft (MSFT)
•Southwest Airlines (LUV)
•Ford Motor Company (F)
•Google (GOOG)

94. Initial Public Offering (IPO)
•An Initial Public Offering (IPO) referred to simply as an
"offering" or "flotation," is when a company issues
common stock or shares to the public for the first time.

•Par Value (Nominal Value) Vs. Market Value

•Under-Value Vs. Over-Value Vs. Fair-Value

95. Initial Public Offering (IPO)
•The first time a stock is sold to the public
•Sold in the Primary Market

96. The Markets
Primary Markets – where stocks are created

Secondary Markets – investors trade previously issued stocks
The Stock Market, Companies are not involved in the buying
and selling of their stock.

97. The Exchanges Markets
Where Stocks are Bought and Sold:
•New York Stock Exchange (NYSE), It is the first-largest
exchange in the world by market capitalization

•National Association of Securities Dealers Automated
Quotations (NASDAQ), It is the second-largest exchange

•Egyptian Exchange Market (EGX)

•American Stock Exchange (AMEX)

98. The Indices (index)
A collection of stocks—representative of the stock market
•Dow Jones – 30 most significant stocks in the stock market
•S&P 500 – 500 largest companies on the US stock market
•NASDAQ Composite – all stocks on the NASDAQ
•EGX 30 – 30 largest companies on the Egyptian stock
market

99. Reading a Stock Table
•Ticker Symbol – the alphabetic name that identifies the stock.
•Price – current stock price
•Open – current day‟s opening price
•Close – the last trading price from the previous day
•Net Change – the net change from the previous day
•Day‟s Range – the current day‟s price range
•52-Week Hi and Low – the highest and lowest prices at which a stock has traded
over the past year
•Trading Volume – the total number of shares traded for the day
•Market Capitalization – the market value of the company
•Dividend Per Share – annual dividend payment per share.
•Price/Earnings Ratio – the current stock price divided by earnings per share for the
last four quarters
Click to Yahoo Finance

100. Example

101. Bulls and Bears
•Bull Market – the economy is great
and stock prices are rising

•Bear Market –the economy is bad and
a recession is looming

102. The Egyptian Exchange is one of the oldest
stock markets established in the Middle
East.

The Egyptian Exchange traces its origins to
1883 when the Alexandria Stock Exchange
was established, followed by the Cairo
Stock Exchange in 1903.

103. Capital Market Structure
CMA
MCDR
EGX

105. 2
nd
April 2014

106. Egyptians VS Foreigners

107. Alternative Delivery Channels
E-Trading is Anytime, anywhere
•Phone Trading
•Online Trading
•Mobile Trading
•ATM Trading

108. Investment Tools
•Updated prices
•Market depth
•Charts

Streamer
•online
•Mobile Trading
•IVR
•Normal trading
Trading App.
•SMS
•E-mail
•Fax
confirmation

109. Learn more and practice
•www.stockriders.com
•www.borsastepxstep.com
•www.egyptse.com

110. Beyond the Basics
•Bonds – a debt investment in which an investor loans
money to an entity (corporate or governmental) that borrows
the funds for a defined period of time at a fixed interest
rate.
•Buying on Margin - borrowed money that is used to
purchase securities.
•Selling Short - a trade in which the investor borrows a
security and sells it to another investor in market.
•Dollar Cost Average - buying a fixed dollar amount of a
particular investment on a regular schedule

111. Options vs. Futures
•Options give the holder the right to buy or sell the
underlying asset at expiration, a futures contract is
an obligation to fulfill the terms of a contract.

•Options: A privilege, sold by one party to another, that gives the
buyer the right, to buy or sell a stock at an agreed-upon price
within a certain period or on a specific date

•Futures: A financial contract obligating the buyer to purchase
an asset at a predetermined future date and price (i.e.
currency, commodities)

112. Thanks…