The document provides tips and tricks for economics concepts on the CFA exam. It discusses income and substitution effects for normal goods and Giffen goods. It also summarizes key points about firms' profitability at different price points and the concept of marginal revenue product. Additional tips cover definitions of money supply measures, types of unemployment, and properly calculating currency appreciation and depreciation rates.

1. Revise Entire CFA Syllabus in 6 days
Economics
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2. Tips-n-Tricks
Economics: has a weight of 10%
• Whenever you get a problem on income effect and substitution effect remember :
Income Effect
Substitution Effect
Normal Goods
POSITIVE
POSITIVE
Giffen Goods
POSITIVE
negative
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Effective Case
>
Income effect
Negative
substitution effect
<
Income effect
Negative
Substitution effect
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3. Tips-n-Tricks Contd…
• A Firm:
 Experiences economic losses when P < ATC.
 Is operating at a shutdown point , when P = AVC.
 Will minimize its losses in the short run by continuing to operate when AVC < P < ATC since it is covering
some of its fixed costs from the difference between P and AVC.
• MRP (Marginal revenue product) - Profit maximization quantity of an input "a" is that
quantity for which MRP(a) = Price(a).
Hence: by employing one more unit of an input the firm can increase profits as long as
MRP(a) >Price(a) as the revenue earned from this input is greater than the cost of the
input.
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4. Tips-n-Tricks Contd…
• Measure of money M2 = M1+ time deposits + saving deposit + money market mutual fund
balances.
 Please notice it includes M1 and all its components .
 All currency EXCEPT held at banks + traveler’s checks + checking a/c deposits of individuals and firms.
• While doing a problem on employment: DO NOT consider Frictional and Structural
Unemployment while calculating full employment (Structural + Frictional = Natural Rate of
Unemployment).
• NEVER assume that appreciation of currency is equal to depreciation of other.
In order to calculate depreciation of foreign currency, the indirect quote is needed to be
converted to direct quote.
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