Interview Preparation Lecture Venue: Career Launcher Tambaram Centre Date: 26 th January, 2018
Session One Duration: 1.5 hours
What to expect from B-schools & what B-schools expects from you
Why Economics?? Economics is a study of how men and society choose Economists are trained to use a set of tools and principles to analyze why individuals, firms, governments and other groups behave as they do. Scarcity & Choice: Available resources are limited and have alternative uses. Need to choose from alternatives that the limited resources allow for. Comparative advantage: the ability to produce a good or service at a lower marginal cost and opportunity cost than another good or service. Production Possibility Frontier: The PPF indicates the production possibilities of two commodities when resources are fixed. This means that the production of one commodity can only increase when the production of the other commodity is reduced, due to the availability of resources. The Pareto Efficiency states that any point within the PPF curve is considered inefficient because the total output of commodities is below the output capacity. Conversely, any point outside the PPF curve is considered to be impossible because it represents a mix of commodities that will take more resources to produce than can be obtained. 4
Diagram of Production Possibility Frontier 5
Microeconomics Microeconomics is the branch of economics which looks at choices made by narrowly defined units, such as individual buyers/consumers, and firms that produce goods. The law of demand states that, all other things remaining equal, as the price of a good increases (decreases), the quantity of that good demanded will decrease (increase). The law of supply says that, all other things remaining equal, as the price of a good increases (decreases), the quantity of that good supplied will increase (decrease). A "shortage" exists when the quantity demanded is greater than the quantity supplied. In this case, we would expect the market price to go up. A "surplus" exists when the quantity supplied is greater than the quantity demanded. In this case, we would expect the market price to go down. Equilibrium price: This process will continue until the quantity demanded is equal to the quantity supplied and equilibrium price is achieved. 6
Diagram of Demand Supply Curve 7
Microeconomics Price elasticity: Percentage change in quantity demanded/supplied of a good resulting from a 1-percent change in its price. Price elasticities are studied to get an idea how quantity demanded or supplied varies with changes in price. Marginal utility: Additional satisfaction obtained from consuming one additional unit of a good. Law of diminishing marginal utility: Principle that as more of a good is consumed, the consumption of additional amounts will yield smaller additions to utility. Two goods are substitutes if an increase in the price of one leads to an increase in the demand of the other. Two goods are complements if an increase in the price of one good leads to a decrease in the demand of the other. 8
Microeconomics Market Structures: Perfect competition: a homogeneous commodity with many identical small buyers and many identical small sellers with free entry and exit (e.g. market for wheat) Monopoly: a single seller with many buyers (e.g. Microsoft) Monopolistic competition: many buyers and sellers, differentiated products (e.g. market for afternoon lunch) Oligopoly: few sellers & large number of buyers (e.g. automobile market) Nash Equilibrium: Prisoner s Dilemma 9
Characteristics of Market Structures Number of Sellers Perfect Competition Many Firms Monopolistic Competition Oligopoly Monopoly Many Firms Few Firms Single Firm Barriers to Entry Very Low Low High Very High Nature of Substitute Products Very Good Substitutes Good Substitutes but Differentiated Very Good Substitutes or Differentiated No Good Substitutes Nature of Competition Price Only Price, Marketing, Features Price, Marketing, Features Advertising Pricing Power None Some Some to Significant Significant 10
Macroeconomics Macroeconomics is the branch of economics that studies the overall workings of an economy. Gross Domestic Product is defined as the value of all goods and services produced within a nation during a particular period of time (typically a year). Market prices are used to determine value and only "final" goods and services (those consumed by the end user) are included. Gross National Product measures the income of all of a nation's citizens, even if that income was earned abroad. Amounts that foreigners earn within the nation's boundaries are not included. Real GDP is Nominal GDP adjusted for inflation calculated relative to a base year. GDP using Expenditure approach = Consumption + Investment +Government Spending +Net Exports exports minus imports 11
Macroeconomics Business Cycle is characterized by fluctuations in economic activity. Four phases of Business Cycle - Expansion (real GDP is increasing) - Peak (real GDP stops increasing and begins decreasing) - Contraction (real GDP is decreasing) - trough (real GDP stops decreasing and begins increasing) Types of Unemployment - Frictional unemployment - Structural unemployment - Cyclical unemployment 12
Diagram of Business Cycle 13
Macroeconomics Inflation is the term used to describe a situation in which the economy s overall price level is rising. The Consumer Price Index (CPI) measures the overall cost of the goods and services bought by a typical consumer. Cost of Market Basket in GivenYear CPI = X 100 Cost of Market Basket in BaseYear Hyperinflation Inflation that accelerates out of control Disinflation Inflation rate decreasing over time but remains greater than zero Deflation A persistently decreasing price level Cost Push Inflation Inflation resulting from decrease in aggregate supply. Demand Pull Inflation - Inflation resulting from increase in aggregate demand. 14
Session Two Duration: 1.5 hours
Fiscal and Monetary Policy Fiscal Policy refers to a government s use of spending and taxation to influence economic activity. Monetary Policy refers to the central bank s actions that affect the quantity of money and credit in an economy to influence economic activity. Fiscal Policy Monetary Policy Budget Surplus Expansionary Budget Deficit Contractionary 16
Fiscal and Monetary Policy Central Bank: Objective of a central bank is to control inflation. Roles of Central Bank: - Sole supplier of Currency - Banker to the government and other banks - Regulator and supervisor of payments system - Lender of last resort - Holder of gold and foreign exchange reserves - Conductor of monetary policy Monetary Policy tools: - Policy rate - Reserve requirements - Open market operations Fiscal Policy Budget Surplus Budget Deficit Monetary Policy Expansionary Contractionary 17
Fiscal and Monetary Policy Objectives of Fiscal Policy: - Influence level of economic activity and aggregate demand - Redistribute wealth and income - Allocating resources among economic agents and sectors in the economy Spending tools: - Transfer payments - Current spending - Capital spending Revenue tools: - Direct taxes - Indirect taxes Fiscal Policy Budget Surplus Budget Deficit Monetary Policy Expansionary Contractionary 18
International Trade Imports Exports Closed Economy Free Trade Trade Protection World Price Domestic Price Net Exports Trade Surplus Trade Deficit 19
Balance of Payments Current Account CapitalAccount Financial Account 20
International Organizations International Monetary Fund The World Bank World Trade Organization
Session Three Duration: 1.5 hours
World Economy 23
The $80 Trillion World Economy Rank Country GDP % of Global GDP #1 United States $19.4 trillion 24.40% #2 China $12.2 trillion 15.40% #3 Japan $4.87 trillion 6.10% #4 Germany $3.68 trillion 4.60% #5 United Kingdom $2.62 trillion 3.30% #6 India $2.60 trillion 3.30% #7 France $2.58 trillion 3.30% #8 Brazil $2.06 trillion 2.60% #9 Italy $1.93 trillion 2.40% #10 Canada $1.65 trillion 2.10% 24
Global Debt Top five leaders in share of global debt Rank Countries Debt ($B) % of Global Debt Debt-to-GDP #1 United States $19,947 31.80% 107.10% #2 Japan $11,813 18.80% 239.30% #3 China $4,976 7.90% 44.30% #4 Italy $2,454 3.90% 132.60% #5 France $2,375 3.80% 96.30% Top five leaders in debt to -GDP Rank Countries Debt ($B) % of Global Debt Debt-to-GDP #1 Japan $11,813 18.80% 239.30% #2 Greece $353 0.60% 181.60% #3 Lebanon $75 0.10% 148.70% #4 Italy $2,454 3.90% 132.60% #5 Portugal $267 0.40% 130.30% 25
Indian Economy Average growth of GDP during 2014-17 (%) 26
Indian Economy Quarterly growth of GDP and GVA (%) 27
Indian Economy Half yearly growth in GVA at (2011-12) basic prices (%) 28
Indian Economy Gross Savings as a share of GDP (%) 29
Indian Economy India s Comparative Growth -2014Q1-2017Q3 30
Indian Economy Profitability and Provisioning of Public Sector Banks (Rs. billion) 31
Indian Economy Currency in Circulation (CIC) and High Denomination Notes (HDN) (In Rs. lakh crore) 32
Indian Economy US and India, Real GDP Growth 33
Last Session Duration: 1.5 hours
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Getting ready for Interviews
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