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PhD from KELLOGG GSM/ Northwestern University
QUIZ Short Answer Questions
Midterm Exam (Multiple Choice )
Final Exam (Multiple Choice)


Opposite to UTOPIA
Deal with real world problems
Example: Someone is sick
For solving any real world problem important to analyze it through the following framework: A) What is our OBJECTIVE
B) CHOICES we can choose from to attain our objective
C) CONSTRAINTS that restrict the choices we can make

If someone is sick
A) Objective: To cure that person
B) Choices: Surgery, physiotherapy, medicine, Xrays etc
C) Constraints: Age, Allergies etc

Three major groups of economic agents: a) Businesses b) Consumers c) Government A) BUSINESSES
1) Objective: to Maximize Profit = Revenues - Costs = $$$$ Revenues = Price x UnitsSold

Alternative Objectives: a) To maximize market share (to sell as many units as possible) b) To minimize costs c) To maximize payments to Labor ( for companies owned by their employees (in the past Avis, United Airlines))

Not-for-profit organizations: Red Cross, CUNY, MoMA, Guggenheim etc How about NYU, Columbia U., Harvard? Private not-for-profit DeVry, University of Phoenix, Capella U. for profit institutions WALL STREET/STOCK MARKET: Example: Apple stock price is $700 and suppose there are 100 000 000 shares. Then Apple’s stock market value (valuation) is $700x100 000 000 = $70 000 000 000 BASED ON EXPECTED PROFITABILITY 2) Choices firms make so to maximize profit: Marketing choices, Finance choices, Operation choices, Legal Form, Human Resources choices, Computer resources choices 3) Constraints for firms in their effort to maximize profit: Economy, Competition, Technology (Kodak), Legal issues, social issues (Lard vs vegetable oil)

1) Objective: Maximize satisfaction (Utility)
2) Choices consumers make to max satisfaction: What to consume/buy 3) Constraints consumers face: Budget, Time constraints, Legal constraints Macabre example: Cryogenics (Walt Disney)

1) Objective: Maximize Social Welfare
2) Choices to Maximize Social Welfare: Programs to Fund, Taxes, Laws 3) Constraints the Government faces in its effort to Max Social Welfare: Budget , Political constraints, Social Constraints, Economy etc

Firms to maximize profits need financing
To finance their operations they participate in Financial Markets

To measure economic activity we use
Gross Domestic Product (GDP): The total value of all goods and services produced in a country during a particular time period.

US GDP is $15T
China GDP $5.3T
Japan GDP $4.9T
Global GDP $60T

GDP per capita: GDP/ Population\
China GDPper capita: $5 300 000 000 000 / 1 300 000 000 = $4 000 Money (income and wealth)
Norway and Luxemburg highest per capita income countries.

GDP growth: Percentage increase of GDP annually
China GDP growth 10% for GDP to double takes less than 7 years Unemployment

Financial assets include: Currencies and Securities (Stocks and bonds) A) A bond is a debt security or fixed income security promising future payments To borrow money we need to pay interest . Interest rate is the cost of borrowing money To max profit a firm will be interested in paying low interest.

Relationship between interest and length of time of maturity of a loan In general, the greater the risk of a loan, the higher is the interest rate In general, the lengthier is a loan, the higher is the interest rate. For a bond:

Coupon corresponds to interest rate
Face Value the value of the bond
Maturity the length of time for the bond
Zero-coupon bonds: for a certain face value they are sold at a discount Bonds with maturity less than one year: a) Commercial paper issued by firms b) Treasury bills issued...
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