Fundamentals of business economics

Book Cover......Page 1
CIMA Success Site......Page 2
Title......Page 3
Copyright......Page 4
Contents......Page 5
 The Objective Test exam......Page 6
 Verb Hierarchy......Page 7
  A. Macroeconomic and institutional context of business (25%)......Page 8
  B. Microeconomic and Organisational Context of Business (30%)......Page 9
  D. The financial context of business (25%)......Page 10
 1 The Best Approach to the CBA......Page 12
 2 The different Objective Test Question Types......Page 13
 Key to icons......Page 14
Chapter 1 Organisations and stakeholders......Page 15
 Chapter overview......Page 16
  1.1 Public and private sector organisations......Page 17
   1.2.1 Public sector and value for money......Page 18
   1.2.3 Financial constraints in not-for-profit organisations......Page 19
 2 Stakeholders......Page 20
  2.2 Stakeholders and not–for–profit organisations......Page 22
  3.3 Principal/agent problem in the public sector......Page 23
  3.4 Resolving the principal/agent problem......Page 24
 Chapter summary......Page 26
 Keywords......Page 27
  Activity 3: Idea generation......Page 28
  Activity 5: Exam standard......Page 29
 Test your learning......Page 30
Chapter 2 Measuring returns to shareholders......Page 31
 Chapter overview......Page 32
   1.1.1 Measuring capital employed......Page 33
  1.3 Analysing short-term returns to shareholders......Page 35
   1.3.1 Measuring the return expected by shareholders......Page 36
 2 Long-run measures of return......Page 37
   2.1.1 Discounting free cash flows to equity......Page 38
   2.1.3 Discounting free cash flows to perpetuity......Page 39
   2.1.4 Increasing shareholder wealth......Page 40
 Chapter summary......Page 42
 Keywords......Page 43
  Activity 2: Exam standard......Page 44
  Activity 5: Idea generation......Page 45
 Test your learning......Page 46
Chapter 3 Demand, supply and price......Page 47
 Chapter overview......Page 48
 2 Demand......Page 49
  2.2 Conditions of demand......Page 50
 3 Supply......Page 51
  3.2 Conditions of supply......Page 53
 4 Equilibrium price......Page 54
  4.1 Movement to equilibrium......Page 55
   4.1.2 Removal of a surplus......Page 56
  4.2 Functions of the price mechanism......Page 57
 Chapter summary......Page 59
 Keywords......Page 60
  Activity 3: Preparation question......Page 61
  Activity 4: Exam standard......Page 63
 Test your learning......Page 65
Chapter 4 Price elasticity......Page 67
 Chapter overview......Page 68
   1.1.1 Simple point method......Page 69
   1.1.2 Drawback of simple point method......Page 70
   1.1.3 Average (midpoint) method......Page 71
  2.1 Value greater than 1: elastic demand......Page 72
  2.2 Value less than 1: inelastic demand......Page 74
  2.3 Determinants of price elasticity of demand.......Page 77
  2.4 Special values of price elasticity of demand......Page 78
  3.2 Influences on price elasticity of supply......Page 79
 Chapter summary......Page 80
 Keywords......Page 81
  Activity 4: Exam standard......Page 82
  Activity 6: Exam standard......Page 83
 Test your learning......Page 84
Chapter 5 Cost behaviour......Page 85
 Chapter overview......Page 86
  1.2 Long run......Page 87
   2.1.1 Trading economies of scale (internal)......Page 88
   2.1.3 Technical economies of scale (internal)......Page 89
   2.1.4 Technical economies of scale (continued)......Page 90
  2.2 External economies of scale......Page 91
 3 Diseconomies of scale......Page 92
  4.2 MES in different sectors......Page 93
  4.4 Methods of growth......Page 94
   4.4.1 Types of integration......Page 95
   5.1.1 Outsourcing......Page 96
   5.2.2 Flexible staffing......Page 97
 Chapter summary......Page 98
 Keywords......Page 99
  Activity 2: Exam standard......Page 100
  Activity 4: Idea generation......Page 101
 Test your learning......Page 102
Chapter 6 Market failure......Page 103
 Chapter overview......Page 104
  2.2 Merit and demerit goods......Page 105
  2.3 Dealing with externalities......Page 106
   3.1.1 Failure to provide public goods......Page 107
  4.1 Indirect tax......Page 108
   4.1.1 Price elasticity and the impact of indirect taxes......Page 109
  4.2 Subsidy......Page 110
  5.1 Direct provision......Page 111
  5.3 Minimum pricing policies......Page 112
   5.3.2 Effects of a minimum wage......Page 113
   5.4.1 Effects of maximum price (price ceiling)......Page 114
 Chapter summary......Page 115
 Keywords......Page 116
  Activity 3: Idea generation......Page 117
  Activity 6: Preparation question......Page 118
 Test your learning......Page 119
Chapter 7 National income......Page 121
 Chapter overview......Page 122
  1.2 Different measures of economic activity......Page 123
 2 Factors affecting national income......Page 124
  2.1 Influences on national income......Page 125
  3.1 Consumer spending......Page 126
   3.2.1 Injections and withdrawals......Page 127
   4.2.1 Investment (I)......Page 129
   4.2.4 Multiplier effect......Page 130
   4.2.5 The multiplier......Page 131
   4.2.6 Implications of the multiplier effect......Page 133
 Chapter summary......Page 134
 Keywords......Page 135
  Activity 1: Preparation question......Page 136
  Activity 3: Exam standard......Page 137
  Activity 5: Exam standard......Page 138
 Test your learning......Page 139
Chapter 8 The trade cycle......Page 141
 Chapter overview......Page 142
  1.3 Low inflation......Page 143
  2.3 Supply-side policy......Page 145
  3.3 Depression......Page 146
  4.1 Impact on business......Page 147
  4.2 Government action......Page 148
  5.1 Deflationary gap and cyclical unemployment......Page 149
  5.3 Government action......Page 150
  6.1 Inflationary gap......Page 151
  6.3 Government action......Page 152
 7 Balance of trade and the trade cycle......Page 153
 Chapter summary......Page 154
 Keywords......Page 155
  Activity 3: Preparation question......Page 156
  Activity 5: Exam standard......Page 157
 Test your learning......Page 158
Chapter 9 Index numbers......Page 159
 Chapter overview......Page 160
  1.1 Fixed base and chain base methods......Page 161
 2 Using price indices to calculate inflation......Page 162
  2.1 Base weighted price indices......Page 163
   2.1.1 Formula......Page 164
  2.2 Current weighted indices......Page 165
   2.2.1 Formula......Page 166
  3.1 Adjusting time series data for inflation......Page 167
 4 Calculating quantity indices......Page 168
  4.1 Formula......Page 169
 Chapter summary......Page 171
 Keywords......Page 172
  Activity 3: Exam standard......Page 173
  Activity 4: Preparation question......Page 174
 Test your learning......Page 175
Chapter 10 Government economic policy......Page 177
 Chapter overview......Page 178
  1.1 Types of government spending......Page 179
   2.1.1 Direct taxation......Page 180
   2.1.3 Balance of different types of tax......Page 181
  3.3 Structural deficits......Page 182
 4 Fiscal policy......Page 183
  5.1 The money supply......Page 184
  6.1 Advantages of fiscal policy vs monetary policy......Page 185
 7 Supply-side policies......Page 186
   7.2.1 Advantages of supply-side policies......Page 187
   7.2.2 Disadvantages of supply-side policies......Page 188
 Chapter summary......Page 189
 Keywords......Page 190
  Activity 3: Preparation question......Page 191
 Test your learning......Page 192
Chapter 11 International economics......Page 193
 Chapter overview......Page 194
  1.2 Capital account......Page 195
   1.4.1 Imbalance......Page 196
  2.3 Impact of likely government policy responses......Page 198
  3.1 Demand......Page 199
  3.2 Supply......Page 200
  3.4 Exchange rates and interest rates......Page 201
  3.5 Exchange rates and inflation rates......Page 202
  4.2 Fixed exchange rates......Page 203
 Chapter summary......Page 205
 Keywords......Page 206
  Activity 3: Exam standard......Page 207
 Test your learning......Page 208
Chapter 12 International trade......Page 209
 Chapter overview......Page 210
  1.3 Protectionism......Page 211
  2.4 Economic union......Page 212
 4 International Monetary Fund (IMF)......Page 213
 6 Globalisation......Page 214
  6.2 PESTEL......Page 215
 Chapter summary......Page 217
  Activity 2: Exam standard......Page 218
 Test your learning......Page 219
Chapter 13 Functions of the financial system......Page 221
 Chapter overview......Page 222
  1.3 The matching concept......Page 223
  2.1 Functions of financial intermediaries......Page 224
  2.2 Financial intermediaries and short-term finance......Page 225
  3.2 Financial markets and short-term finance......Page 226
  3.3 Financial markets and long-term finance......Page 228
   3.3.1 Other types of bonds......Page 229
 Chapter summary......Page 230
 Keywords......Page 231
  Activity 4: Exam standard......Page 232
 Test your learning......Page 233
Chapter 14 Commercial and Central banks......Page 235
 Chapter overview......Page 236
  1.1 Conflicting aims......Page 237
  1.2 Credit creation......Page 238
  1.3 The credit multiplier......Page 239
 2 Role of central banks......Page 240
  2.3 Maintaining financial stability......Page 241
  3.1 Risk and return on financial assets......Page 242
  3.3 The impact of the central bank on financial market yields......Page 243
 Chapter summary......Page 244
  Activity 2: Exam standard......Page 245
 Test your learning......Page 246
Chapter 15 Financial mathematical techniques......Page 247
 Chapter overview......Page 248
  1.1 Simple interest......Page 249
  1.2 Compound interest......Page 250
   1.2.1 Formula......Page 251
 2 Compounding – further issues......Page 252
  2.2 Inflation......Page 253
  2.3 Withdrawals......Page 254
  2.4 Equivalent annual rates......Page 255
  3.1 Net present value......Page 256
  3.2 Discount factor formula......Page 257
  3.3 Net present value and annuities......Page 258
  3.4 Net present value and perpetuities......Page 259
   3.5.1 Calculation of IRR......Page 260
   3.5.2 Problem with IRR......Page 262
 4 Loans and mortgages......Page 263
 Chapter summary......Page 265
  Activity 3: Exam standard......Page 266
  Activity 8: Exam standard......Page 267
  Activity 11: Exam standard......Page 268
 Test your learning......Page 269
Chapter 16 Impact of interest & exchange rate changes on business performance......Page 271
 Chapter overview......Page 272
  1.1 Direct impact on business performance......Page 273
  1.2 Indirect impact on business performance......Page 274
  1.3 Impact of interest rate changes on exchange rates......Page 275
  2.1 Impact on measures of economic performance (sales, costs, profits)......Page 276
  2.2 Impact on assets and liabilities denominated in a foreign currency......Page 277
   3.2.1 Differences between futures and forwards......Page 278
   3.3.1 Drawback of options......Page 279
 Chapter summary......Page 280
  Activity 4: Exam standard......Page 281
 Test your learning......Page 282
Chapter 17 Data and information......Page 283
 Chapter overview......Page 284
  1.1 Characteristics of good information 'ACCURATE'......Page 285
  2.1 Simple bar chart......Page 286
  2.3 Percentage component bar chart......Page 287
  3.1 Frequency distributions......Page 288
  3.2 Histograms......Page 289
  3.3 Interpreting a histogram with unequal class intervals......Page 290
  4.1 Cumulative frequency distributions......Page 292
  4.2 Interpreting an ogive......Page 293
 5 Scatter diagrams......Page 294
  5.2 The trend line......Page 295
  5.4 Using trend lines to make predictions......Page 296
 6 Big data......Page 297
  6.2 Criticisms of big data......Page 298
 Chapter summary......Page 299
 Keywords......Page 300
  Activity 3: Exam standard......Page 301
 Test your learning......Page 302
Chapter 18 Forecasting......Page 303
 Chapter overview......Page 304
  1.2 Methods of finding the trend......Page 305
   1.2.1 Use of moving averages to find the trend......Page 306
   1.2.2 Use of additive model to find the seasonal variation......Page 308
   1.2.3 Multiplicative model and seasonal variation......Page 311
   1.2.5 Seasonally-adjusted data......Page 313
  1.3 Using trend & seasonal variation for forecasting......Page 314
 2 Forecasting – using regression analysis......Page 317
 3 Correlation......Page 319
  3.2 The correlation coefficient......Page 320
  3.4 Spearman's rank correlation coefficient......Page 323
  4.2 The reliability of regression analysis forecasts......Page 325
 Chapter summary......Page 326
 Keywords......Page 327
  Activity 4: Exam standard......Page 328
  Activity 6: Exam standard......Page 329
  Activity 7: Exam standard......Page 330
 Test your learning......Page 331
 Chapter 2......Page 333
 Chapter 5......Page 334
 Chapter 6......Page 335
 Chapter 8......Page 336
 Chapter 10......Page 337
 Chapter 11......Page 338
 Chapter 14......Page 339
 Chapter 16......Page 340
 Chapter 18......Page 341
 Present value table......Page 343
 Cumulative present value table......Page 345
Bibliography......Page 347
Index......Page 349
Notes......Page 353
Review Form......Page 361