CHRISTOPHER D. PIROS, PHD, CFA, is the Managing Director of Investment Strategy and Chairman of the Investment Policy Committee at Hawthorn, a member of the PNC Financial Services Group, Inc., which is dedicated to serving the needs of individuals and families with investable assets in excess of [...] million. Prior to joining PNC, Mr. Piros served on the team responsible for the curriculum underlying the Chartered Financial Analyst(R) designation. He also has served as Director of Investment Strategy & Portfolio Management at Prudential Investments LLC, the wealth management services arm of Prudential Financial. And he was a global fixed-income portfolio manager and head of fixed-income quantitative analysis at MFS Investment Management.

JERALD E. PINTO, PHD, CFA, is Director, Curriculum Projects, in the education division of the CFA Institute. Prior to joining CFA Institute, he consulted with corporations, foundations, and partnerships in investment planning, portfolio analysis, valuation, and quantitative analysis. Pinto also worked in the investment and banking industries in New York, and taught finance at NYU Stern School of Business. He holds an MBA from Baruch College, a PhD in finance from the Stern School, and is a member of CFA Virginia.

CFA INSTITUTE is a global, not-for-profit organization comprising the world's largest association of investment professionals. With over 100,000 members, and regional societies around the world, CFA Institute is dedicated to developing and promoting the highest educational, ethical, and professional standards in the investment industry. CFA Institute offers a range of educational and career resources, including the Chartered Financial Analyst (CFA) and the Certificate in Investment Performance Measurement (CIPM) designations, and is a leading voice on global issues of fairness, market efficiency, and investor protection.

Foreword xiii

Acknowledgments xvii

About the CFA Institute Investment Series xix

CHAPTER 1 Demand and Supply Analysis: Introduction 1

Learning Outcomes 1

1. Introduction 2

2. Types of Markets 3

3. Basic Principles and Concepts 4

4. Demand Elasticities 40

5. Summary 51

Practice Problems 53

CHAPTER 2 Demand and Supply Analysis: Consumer Demand 59

Learning Outcomes 59

1. Introduction 59

2. Consumer Theory: From Preferences to Demand Functions 60

3. Utility Theory: Modeling Preferences and Tastes 60

4. The Opportunity Set: Consumption, Production, and Investment Choice 70

5. Consumer Equilibrium: Maximizing Utility Subject to the Budget Constraint 75

6. Revisiting the Consumer's Demand Function 78

7. Summary 86

Practice Problems 87

CHAPTER 3 Demand and Supply Analysis: The Firm 89

Learning Outcomes 89

1. Introduction 89

2. Objectives of the Firm 90

3. Analysis of Revenue, Costs, and Profits 96

4. Summary 135

Practice Problems 136

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CHAPTER 4 The Firm and Market Structures 143

Learning Outcomes 143

1. Introduction 143

2. Analysis of Market Structures 144

3. Perfect Competition 149

4. Monopolistic Competition 163

5. Oligopoly 169

6. Monopoly 179

7. Identification of Market Structure 188

8. Summary 191

Practice Problems 192

CHAPTER 5 Aggregate Output, Prices, and Economic Growth 197

Learning Outcomes 197

1. Introduction 198

2. Aggregate Output and Income 198

3. Aggregate Demand, Aggregate Supply, and Equilibrium 217

4. Economic Growth and Sustainability 256

5. Summary 270

Practice Problems 273

CHAPTER 6 Understanding Business Cycles 279

Learning Outcomes 279

1. Introduction 279

2. Overview of the Business Cycle 280

3. Theories of the Business Cycle 294

4. Unemployment and Inflation 303

5. Economic Indicators 319

6. Summary 327

Practice Problems 328

CHAPTER 7 Monetary and Fiscal Policy 333

Learning Outcomes 333

1. Introduction 334

2. Monetary Policy 335

3. Fiscal Policy 374

4. The Relationship between Monetary and Fiscal Policy 392

5. Summary 396

Practice Problems 397

CHAPTER 8 International Trade and Capital Flows 403

Learning Outcomes 403

1. Introduction 403

2. International Trade 404

3. Trade and Capital Flows: Restrictions and Agreements 424

4. The Balance of Payments 436

5. Trade Organizations 451

6. Summary 457

Practice Problems 459

CHAPTER 9 Currency Exchange Rates 465

Learning Outcomes 465

1. Introduction 465

2. The Foreign Exchange Market 467

3. Currency Exchange Rate Calculations 484

4. Exchange Rate Regimes 500

5. Exchange Rates, International Trade, and Capital Flows 511

6. Summary 521

Practice Problems 524

CHAPTER 10 Currency Exchange Rates: Determination and Forecasting 527

Learning Outcomes 527

1. Introduction 528

2. Foreign Exchange Market Concepts 530

3. A Long-Term Framework for Exchange Rates 547

4. The Carry Trade 569

5. The Impact of Balance of Payments Flows 573

6. Monetary and Fiscal Policies 585

7. Exchange Rate Management: Intervention and Controls 597

8. Currency Crises 602

9. Shorter-Term Forecasting Tools 605

10. Summary 611

11. Appendix: Currency Codes Used in This Chapter 615

Practice Problems 615

CHAPTER 11 Economic Growth and the Investment Decision 621

Learning Outcomes 621

1. Introduction 622

2. Growth in the Global Economy: Developed versus Developing Countries 622

3. Why Potential Growth Matters to Investors 631

4. Determinants of Economic Growth 635

5. Theories of Growth 663

6. Growth in an Open Economy 684

7. Summary 694

Practice Problems 696

CHAPTER 12 Economics of Regulation 703

Learning Outcomes 703

1. Introduction 703

2. Overview of Regulation 704

3. Regulation of Commerce 715

4. Regulation of Financial Markets 719

5. Cost-Benefit Analysis of Regulation 720

6. Analysis of Regulation 722

7. Summary 728

Practice Problems 729

Glossary 731

References 745

About the Editors 751

About the CFA Program 753

Index 755