Economics: Program

A. Financial Economics

1. Financial markets and instruments

Direct and indirect financing, their advantages and disadvantages, debt and equity instruments, money market instruments, capital market instruments, derivatives. Types of financial markets.

2. Discounting

Future value, present value, discount rate, discount factor, net present value rule, annuity, perpetuity, valuing annuities and perpetuities with and without growth, return definitions: realized return, required return, fair return, hurdle rate, expected return, opportunity cost of capital, weighted average cost of capital, compound and simple interest rates, nominal and real interest rates.

3. Bond market

Bonds, coupons, discount bonds, consol bonds, convertible bonds, callable bonds, yield to maturity, coupon yield, valuation of bonds, duration and modified duration, term structure of interest rates, risk structure of interest rates.

4. Stock market

Common and preferred stocks, dividends, cumulative and non-cumulative stocks, IPO, secondary market, par value, book value, market value, holding period return, capital gain, dividend yield, payout ratio, retention ratio, earnings per share, price-earnings ratio, return on equity, valuation of stocks: Dividend Discount Model, Gordon Growth Model, present value of growth opportunities, cum div and ex div stock prices.

5. Portfolio theory and diversification

Measuring risk: variance and standard deviation of returns, covariance and correlation, portfolio expected return, portfolio variance, idiosyncratic (nonsystematic) and market (systematic) risk, diversification, market beta, Sharpe and Treynor ratios.

6. Asset pricing models: the CAPM

Markowitz portfolio theory, mean-variance analysis, efficient frontier, two-fund separation theorem, the market portfolio, the Capital Asset Pricing Model (CAPM), capital market line (CML), securities market line (SML), criticism of the CAPM.

7. Asset pricing models: the APT

Multifactor models, factor betas, replicating portfolios, factor replicating portfolios, the Arbitrage Pricing Theory (APT), Fama-French three-factor model.

8. Derivatives and derivative pricing

Forwards, futures, swaps, options, embedded options, exotic options, structured derivatives, asset-backed securities, forward pricing, currency forward pricing, Covered Interest Parity (CIP).

9. Options and option pricing

Types of options: put and call, European and American options, strike price, option premium, option pricing, replication of options, the one-period binomial model, the multi-period binomial model, the risk-neutral pricing, the Black-Scholes formula, the put-call parity, portfolios of options, hedging by options.

10. Capital structure of a corporation

Debt and equity financing, the Modigliani-Miller theorem, effect of corporate and personal taxation, tax shield, effect of asymmetric information and agency costs, asset substitution and risk-shifting, the debt overhang problem, signaling by debt.

11. Dividend policy

The Modigliani-Miller theorem for dividends, factors influencing dividend policy, effects of taxation, asymmetric information and agency costs on dividends.

Textbooks

  • Brealey, Richard A., Stewart C. Myers, and Franklin Allen “Principles of Corporate Finance”, 10th ed.
  • Grinblatt, Mark, and Sheridan Titman “Financial Markets and Corporate Strategy”, 2nd ed.

B. Macroeconomics

1. Introduction to Macroeconomics. Key Macroeconomic Variables

Subject of Macroeconomics and Key Macroeconomic Problems. Principles and Tools of Macroeconomic Analysis. The Model of Circular Flows: Aggregate Product, Aggregate Expenditures and Aggregate Income. The Major Macroeconomics Identity. Macroeconomic Policy.

Gross Domestic Product (GDP) and Other Variables of National Accounts. Nominal versus Real GDP. GDP Deflator versus Consumer Price Index (CPI). Rate of Inflation. Rate of Unemployment. Nominal versus Real Interest Rate. Fisher Effect.

2. Goods Market Equilibrium

Components of Aggregate Expenditures. Consumption Function in the Short Run. Marginal and Average Propensity to Consume. Investment Function in the Short Run. Planned and Actual Aggregate Expenditures. «Keynesian Cross». Restoration of Equilibrium in the Goods Market. The «Paradox of Thrift». Expenditure and Output Gaps in the «Keynesian Cross». Government Expenditures, Their Components and Effect on the Economy. Taxes and Their Role in the Economy.

Fiscal Policy and Its Instruments. Government Spending Multiplier, Tax Multiplier and Transfer Multiplier. Discretional and Automatic Fiscal Policy. Government Budget Deficit and National Debt.

3. Money Market Equilibrium

Money, its Functions and Types. Motives for Holding Money. Quantity Theory of Money and Transaction Demand for Money. Liquidity Preference Theory and Speculative Demand for Money. Baumol-Tobin Model of Money Demand. Money Demand Function.

Money Supply. Money Supply Aggregates. Role of Commercial Banks in Creating Money Process. Types of Bank Reserves. Deposit and Loan Multipliers. Central Bank and its Functions. Monetary Base, Money Stock, and Money Multiplier. Money Market Equilibrium and its Restoration.

Monetary Policy, its Ultimate Goals and Intermediate Targets. Money Transmission Mechanism. Monetary Policy and Inflation. Inflationary Expectations. Real Effects of Inflation. Inflation Tax.

4. Simultaneous Goods and Money Markets Equilibrium: IS-LM Model

Assumptions of the Model. The IS Curve and its Properties. The LM Curve and its Properties. Equilibrium and its Restoration Mechanism in the IS-LM Model. Fiscal and Monetary Policy in the IS-LM Model and their Comparative Effectiveness. Fiscal and Monetary Policy Multipliers. Crowding Out Effect in the Closed Economy.

The IS-LM Model as the Model of Aggregate Demand. The Aggregate Demand (AD) Curve and its Properties.

5. Short-Run Model of the Open Economy: IS-LM-BP Model

Macroeconomic Variables in the Open Economy. Balance of Payments and its Accounts.

Exchange Market Equilibrium. Nominal versus Real Exchange Rate. Concept and Types of Arbitrage. Purchasing Power Rarity Theory. Covered and Uncovered Interest Rate Parity. Fixed and Flexible Exchange Rate Systems.

Goods Market in the Open Economy. The IS Curve in the Open Economy. Net Exports Function. Financial Market in the Open Economy. Capital Flows Function. Capital Mobility and its Variants. The LM Curve in the Open Economy. The Balance of Payments (ВР) Curve. Equilibrium in the IS-LM-BP Model. Macroeconomic Policy in the Small Open Economy under Fixed and Flexible Exchange Rates and Different Variants of Capital Mobility.

6. Aggregate Demand and Aggregate Supply (AD-AS) Model

Classical Approach. Equilibrium of Aggregate Demand and Aggregate Supply in the Economy of Full Employment. Classical Dichotomy and Neutrality of Money. Macroeconomic Policy in the Economy of Full Employment.

Keynesian Approach. Alternative Explanations for the Positive Slope of the Short-Run Aggregate Supply Curve. The AD-SRAS-LRAS Model.

Macroeconomic Policy in the AD-SRAS-LRAS Model. Real Effects of Fiscal and Monetary Policy in the Short Run and in the Long Run.

7. Labor Market, Natural Rate of Unemployment and Phillips Curve

Labor Market Equilibrium and Unemployment. Types of Unemployment. Natural Rate of Unemployment. Model of Labor Force Dynamics. Real-Wage Unemployment and its Causes. Consequences of Unemployment. The «Okun’s Law».

Short-Run Phillips Curve and its Evolution. Expectations-Augmented Phillips Curve. Adaptive and Rational Inflationary Expectations. Long-Run Phillips Curve.

Disinflation Policy and its Types. Sacrifice Ratio.

8. Financial Market. Theories of Consumption and Investment

Financial Market and its Structure. Financial Intermediaries and Financial Instruments. Financial Market and Economic Activity Fluctuations. Rational Expectations and Effective Market Hypothesis. Present Value and Price Formation in the Financial Markets. No Arbitrage Condition. Fundamental Value and Bubbles.

Intertemporal Budget Constraints of Private and Public Sectors. No Ponzi Game Condition. Neutrality of Fiscal Policy (Barro-Ricardian Equivalence) and the Causes for its Nonobservance.

Modigliani-Ando-Brumberg’s Life-Cycle Hypothesis of Consumption. Friedman’s Permanent Income Hypothesis of Consumption.

New Classical Theory of Investment. Accelerator Model. Q-Tobin Theory of Investment.

9. Economic Growth and Business Cycle Fluctuations

Economic Growth: Concept and Empirical Data.

Solow Growth Model. Major Assumptions. Production Function in the Solow Model. Basic Dynamic Equation. The Steady State. Balanced Growth Path. Growth Rates of Different Variables on the Balanced Growth Path. Convergence in the Solow Model. «Golden Rule» of Capital Accumulation. Technological Progress in the Solow Model. Endogenous Growth Models.

Business Cycle Fluctuations: Stylized Facts and Modelling. New Classical and New Keynesian Approaches to Business Cycle Explanation. Real Business Cycle Model. Dynamics of Key Macroeconomic Variables: Procyclical, Countercyclical and Acyclical. Leading, Lagging and Coincident Indicators.

Textbooks

  • Blanchard Olivier, Macroeconomics. Pearson. 7th edition, 2016.
  • Abel Andrew B., Bernanke Ben S., Croushore Dean. Macroeconomics. Pearson. 9th edition, 2016.
  • Mankiw Gregory N. Macroeconomics. New York: Worth Publishers. 9th edition, 2016.
  • Dornbusch Rudiger, Fischer Stanley, Startz Richard. Macroeconomics. McGraw-Hill. 12th edition. 2014.

C. Management

1. Elements of general theory of management

A process approach to management: planning, organization, motivation, control. A structural approach to management: types of organizational structures according to interactions with the external environment; the factors influencing the design of organizations. A system approach to management: internal and external environment of the company.

2. Strategic management

The main components of strategic management: strategy, strategic decisions, objectives, mission and vision, strategic business units, the corporate portfolio. Strategic analysis of the external environment of the company: PEST analysis, stakeholders analysis, industry analysis (Porter’s five forces, strategic groups of competitors, key success factors, industry trends). Strategic analysis the internal environment of the company: the core competences of the company; analysis of the structure, culture and resources of the organization (strengths and weaknesses), analysis of prices and costs competitiveness. SWOT analysis. The competitive strategy of the firm. The corporate strategy of the firm. Forms of external development of the company. Portfolio analysis. Implementation of the strategy: types of strategic change; strategy implementation, strategic planning.

3. Financial management

Valuation of financial instruments on the basis of annuities (installment loans with different repayments; short-term banking and consumer loans). Transactions in the stock market (bullish and bearish deals), transactions’ profitability and riskiness evaluation. Formation of a portfolio with a minimum to specified level of risk, and a given level of return. Valuation models (CAPM, model with the constant growth of dividends). Duration and risk of bonds evaluation. Practical application of the capital structure theory, methods for assessment of investment projects of different duration.

4. Theory of organization and organizational behavior

Concept of organization. Levels of analysis of organizational behavior. Compatibility of the individual and the organization. Perception of people and events. Internal and external motivation. Substantive and procedural theories of motivation. Group in the context of the organization. Group norms. Methods of subjection to group pressure. The unity of the group. Group decision making in comparison with the individual. Group unanimity. The nature of leadership. Managers and leaders differences. Leadership theories. Structure of formal organization. Classification of structural forms, their advantages and disadvantages. Power and organization. Sources of power. Political tactics and strategies for the acquisition of power. Machiavellianism. Areas of high politicization of organizations. Levels of the environment of organizations. Organization as an open system. Static and dynamic environment.

5. Marketing

Market research. Market capacity: components of market research; marketing information; methods of market research; market potential; methods for calculating market capacity; market share. Segmentation of the market. Positioning: segmentation goals, consumer segmentation factors, criteria for selecting a target market, evaluation of the attractiveness of market segments; the need for positioning, position determination rules, position charts. Marketing mix: Product (classification of goods, three levels of goods. Life cycle of goods and basic marketing activities. Competitiveness of goods. Formation of assortment); Placement (Sales and distribution channels, types of marketing intermediaries, merchandising, vertical marketing systems); Price (pricing factors, stages of price calculation, pricing methods, market price adjustment, price discrimination, price strategies); Promotion (promotion system on the market, advertising, advertising campaign effectiveness, types of promotion, public relations (PR), personal sales).

Textbooks

  • Richard L. Daft. Management. 9th edition – Cegage Learning, 2010
  • Arthur A. Thompson, Alonzo J. Strickland. Strategic Management: concept and cases. – McGraw-Hill/Irwin, 2003
  • Eugene F. Brigham, Michael C. Ehrhardt/ Financial Mangement: Theory and Practice. 13th edition. – Cengage Learning, 2010
  • Rosenfeld R.H., Wilson D.C. Managing organizations. – McGraw-Hill, 1999
  • Philip Kotler, Kevin Lane Kotler. Marketing management. 12th edition. – Pearson education, 2006
  • Peter Cheverton. Key Marketing Skills. 2nd edition. – Kogan pages, 2004.

D. Microeconomics

1. Consumer choice

Preferences and utility. The budget constraint of the consumer. The model of consumer choice. Optimal consumer choice and demand function. The income effect and substitution effect in changing the demand for goods (Slutsky and Hicks equations).

2. Production and costs

Production function. Cost minimization and input conditional demand. Production costs in short run and in long run.

3. Firm under perfect competition

Equilibrium of the firm in the short run. The supply function of the firm in the short run. The market equilibrium in the short run. A competitive equilibrium of the firm in the long run. An analysis of the effects of state regulation (taxes, subsidies, price controls, etc.).

4. Monopoly. Pure monopoly output and prices

Pure monopoly equilibrium in the short run. Monopoly in the long run. Monopoly with multiple plants. Price discrimination. Social costs of monopoly power. Net loss of the company. Government regulation of monopoly power.

5. Pricing in the oligopoly market

Pricing strategy in the Cournot model. Quantitative leadership in the model of Stackelberg. The price leader model. Collusion on the oligopolistic market (cartel agreement)

6. General equilibrium and economic efficiency

Pareto efficiency. The Edgeworth’s box. Trade. The line of consumer contracts. Achieving the effectiveness of trade in a competitive market through the pricing. Border (curve) of possible usefulness. Efficiency in the sphere of production. The price mechanism for achieving efficiency in the sphere of production. Line of production contracts. The production capacity curve. The marginal rate of transformation. Efficiency in the structure of output (simultaneous efficiency in trade and production).

7. Market failures

Externalities and inefficiencies. Approaches to the problem: regulations, Pigou taxes (subsidies), tradable permits for emissions, the internalisation of external effects; externalities and property rights: the Coase theorem. Public good. Efficiency condition, free-rider problem. Asymmetry of information. Unobservable characteristics and the problem of adverse selection. Solutions. Unobserved actions and the problem of opportunistic behavior. Solutions.

Textbooks

  • Robert Pindyck, Daniel Rubinfeld. Microeconomics. 8th edition/ - Pearson, 2013.
  • Hal R. Varian. Intermediate Microeconomics. A Moderm Approach. 8th edition – W.W.Norton & Company, 2010.