Investment Management Certificate (IMC) Microeconomics, Macroeconomics and Financial Statements Syllabus

Microeconomics, Macroeconomics and Financial Statements syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Microeconomics, Macroeconomics and Financial Statements in Investment Management Certificate (IMC), not a summary of it.

1. 1

   Microeconomics

   3 topics

   • Demand and supply
     • Market equilibrium and price mechanism
     • Elasticity of demand and supply
   • Market structures
     • Perfect competition and monopoly
     • Oligopoly and monopolistic competition
   • Costs of production
     • Fixed, variable and marginal cost
     • Economies of scale
2. 2

   Macroeconomics

   4 topics

   • National income and output
     • GDP measurement and the circular flow
     • The business cycle
   • Inflation and unemployment
     • Causes and measures of inflation
     • Types of unemployment and the Phillips curve
   • International economics
     • Balance of payments
     • Exchange rate determination
   • Economic indicators for investors
     • Leading, coincident and lagging indicators
     • Linking the cycle to asset returns
3. 3

   Monetary and Fiscal Policy

   3 topics

   • Monetary policy
     • Role of central banks and interest rate setting
     • Quantitative easing and the monetary transmission mechanism
   • Fiscal policy
     • Government spending, taxation and budget deficits
     • Automatic stabilisers
   • Policy interaction and constraints
     • Independence of monetary policy
     • Public debt sustainability
4. 4

   Financial Statement Analysis

   4 topics

   • The principal financial statements
     • Statement of profit or loss
     • Statement of financial position (balance sheet)
     • Statement of cash flows
   • Accounting concepts and standards
     • Accruals, going concern and prudence
     • IFRS and UK GAAP overview
   • Ratio analysis
     • Profitability and efficiency ratios
     • Liquidity and gearing ratios
     • Investor ratios (EPS, P/E, dividend yield)
   • Limitations of financial statements
     • Creative accounting and earnings quality
     • Off-balance-sheet items

Microeconomics, Macroeconomics and Financial Statements flashcards for Investment Management Certificate (IMC)

23 of 54 cards from the Microeconomics, Macroeconomics and Financial Statements deck — real questions with worked answers.

1. State the law of demand and the law of supply.

   Law of demand: all else equal, as the price of a good rises, the quantity demanded falls (downward-sloping demand curve). Law of supply: as price rises, the quantity supplied rises (upward-sloping supply curve).

2. What is market equilibrium, and what happens at a price above it?

   Equilibrium is where quantity demanded equals quantity supplied (where the curves intersect), giving the market-clearing price. Above equilibrium there is excess supply (a surplus), which pushes price down toward equilibrium.

3. Distinguish a movement along a demand curve from a shift of the demand curve.

   A movement along the curve is caused only by a change in the good's own price (change in quantity demanded). A shift of the whole curve is caused by other factors — income, tastes, prices of substitutes/complements, expectations — and is a change in demand.

4. Define price elasticity of demand and give its formula.

   It measures the responsiveness of quantity demanded to a change in price: $$E_d = \frac{\%\,\Delta Q_d}{\%\,\Delta P}$$ Demand is elastic if $|E_d| > 1$, inelastic if $|E_d| < 1$, and unit elastic if $|E_d| = 1$.

5. Define substitute goods and complementary goods.

   Substitutes are goods used in place of one another (e.g. tea and coffee); a rise in the price of one raises demand for the other (positive cross elasticity). Complements are used together (e.g. cars and petrol); a rise in the price of one lowers demand for the other (negative cross elasticity).

6. Name the four main market structures and rank them by degree of competition.

   From most to least competitive: perfect competition, monopolistic competition, oligopoly, and monopoly.

7. List the key characteristics of perfect competition.

   Many small buyers and sellers, a homogeneous (identical) product, free entry and exit, perfect information, and firms are price takers. In the long run firms earn only normal profit.

8. Define a monopoly and a key feature of its pricing behaviour.

   A monopoly is a single seller dominating the market with high barriers to entry and no close substitutes. The monopolist is a price maker/setter and can earn supernormal (abnormal) profits in the long run; output is lower and price higher than under perfect competition.

9. What is an oligopoly and what behaviour characterises it?

   An oligopoly is a market dominated by a few large firms with high barriers to entry. Firms are interdependent, so each considers rivals' reactions; behaviour includes price rigidity, non-price competition, and the risk of collusion or cartels.

10. Distinguish fixed costs from variable costs.

    Fixed costs do not change with output in the short run (e.g. rent, insurance). Variable costs change directly with output (e.g. raw materials, hourly labour). Total cost = fixed cost + variable cost.

11. Define marginal cost and give its formula.

    Marginal cost is the additional cost of producing one more unit of output: $$MC = \frac{\Delta TC}{\Delta Q}$$

12. Define average total cost and state its formula.

    Average total cost is the cost per unit of output: $$ATC = \frac{TC}{Q} = AFC + AVC$$ where AFC is average fixed cost and AVC is average variable cost.

13. What are economies of scale and diseconomies of scale?

    Economies of scale: long-run average cost falls as output increases (e.g. bulk buying, specialisation). Diseconomies of scale: long-run average cost rises as output increases (e.g. coordination and communication problems in very large firms).

14. State the profit-maximising output rule for a firm.

    A firm maximises profit where marginal revenue equals marginal cost: $$MR = MC$$ (provided MC is rising through that point).

15. Define Gross Domestic Product (GDP).

    GDP is the total market value of all final goods and services produced within a country's borders over a given period (usually a year). It can be measured by the output, income, or expenditure method, which should all give the same total.

16. State the expenditure formula for GDP.

    $$GDP = C + I + G + (X - M)$$ where $C$ is consumption, $I$ is investment, $G$ is government spending, $X$ is exports and $M$ is imports (so $X - M$ is net exports).

17. Distinguish nominal GDP from real GDP.

    Nominal GDP is measured at current prices and is not adjusted for inflation. Real GDP is adjusted for inflation (measured at constant base-year prices), so it reflects actual changes in the volume of output.

18. Distinguish GDP from GNP (GNI).

    GDP measures output produced within a country's borders regardless of ownership. GNP/GNI measures income earned by a country's residents/nationals wherever produced; it equals GDP plus net income from abroad.

19. What are the four phases of the economic (business) cycle?

    Expansion (boom/recovery), peak, contraction (recession/downturn), and trough. A recession is commonly defined as two consecutive quarters of negative real GDP growth.

20. Define inflation and deflation.

    Inflation is a sustained rise in the general price level (a fall in the purchasing power of money). Deflation is a sustained fall in the general price level. Disinflation is a fall in the rate of inflation (prices still rising, but more slowly).

21. Distinguish demand-pull from cost-push inflation.

    Demand-pull inflation arises when aggregate demand exceeds aggregate supply (too much money chasing too few goods). Cost-push inflation arises when rising input costs (wages, raw materials, energy) push up firms' prices.

22. What are the CPI and RPI, and name a key difference.

    Both are measures of UK consumer price inflation based on a basket of goods. The RPI (Retail Prices Index) includes housing costs such as mortgage interest and council tax and uses an arithmetic mean; the CPI (Consumer Prices Index) excludes most housing costs and uses a geometric mean, so the CPI is usually lower.

23. Define the unemployment rate and name the main types of unemployment.

    The unemployment rate is the percentage of the labour force that is willing and able to work but cannot find a job. Main types: frictional, structural, cyclical (demand-deficient), and seasonal.

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