ASB-3215-

Advanced Investment
Theory and Practice
Lecture 8- Part II Macroeconomic and Industry Analysis

Dilek Ulu

Bangor Business School
2013/2014

Key Economic Statistics

GDP, is the measure of the economys total production of

goods and services.

Unemployment rate, is the percentage of total labor force

yet to nd work.
Ination, is the rate at which the general level of prices rise.
Budget decit, is the dierence between government

spending and revenues.

Interest rate, is the price of money.

Fiscal and Monetary Policy

Fiscal Policy refers to the governments spending and tax

actions to stimulate or slow the economy.

Monetary Policy refers to the manipulation of the money

supply to aect the macroeconomy through money supplys

impacts on interest rates.
Monetary Policy Tools
Open Market Operations (OMO)
Discount Rate
Required Reserves

Monetary Policy Tools

Open Market Operations: Central bank changes the money

supply by buying or selling securities for its own account.

Discount rate: is the interest rate Central Bank charges

banks on short term loans. Reduction in the discount rate

signals a more expansionary policy.
Required Reserves: Central Bank can change the eective

money supply by changing the reserve requirements of the

banks. For example , in case of a reduction in required
reserves, banks make more loans which in turn increases the
money supply.

The Business Cycle

A peak is the transition from the end of an
expansion to the start of a contraction.

A trough occurs at the bottom of a
recession just as the economy enters a
recovery.
If sales of an industry is sensitive to
macroeconomic conditions, those
industries are called cyclical industries.
In contrast to cyclical industries,
defensive industries have little sensitivity
to the business cycle.

Sensitivity to the Business Cycle

Sensitivity of Sales
Operating Leverage (division between xed and variable

costs) Firms with high xed costs can have large swings in
their prots in response to change in business conditions.
Financial Leverage (the use of borrowing). High interest

payments increase the sensitivity of prots to business

conditions.