Economics involves the choices people make when matching their limitless needs and wants with a scarcity of resources. The word "economics" is derived from the Greek words "oikos", which means house, and "nomos", which means manager. So the term originally referred to management of the household. Today, the term has been broadened to refer to firms and all of society.

Another way of looking at economics is to consider the field as a set of tools for analyzing people and groups and the choices that they make. Accountants are trained to render an account of financial activity for a company. Lawyers are trained into a certain mode of thinking so as to resolve issues in a legal framework. Similarly, economists are trained to use a set of tools and principles to analyze why individuals, firms, governments and other groups behave as they do.

Models
Economists often use models, which are representations of what the economist wishes to analyze. If, for example, an economist wishes to analyze the behavior of a labor union, the economist will not try to include every possible aspect and piece of data about labor unions in his or her model. Important factors will be focused on, such as wages, benefits, alternative jobs, etc. Hopefully the economist's model will include all of the important variables and will give little or no weight to less critical variables.

Most economic analyses include the phrase "everything else is remaining the same", so attention can be focused on the variables specified by the model. Of course, this assumption is rarely true in real life. If one were trying to analyze federal deficits and interest rates, for example, there would be plenty of change during the time period analyzed.

The CFA Level I Exam
The economics portion of the CFA Level I exam touches on a wide range of economic theory. The material covered would normally be taught in senior (or graduate level) microeconomic, macroeconomic, money and banking, and international trade courses. You will need to understand all of the material presented here in order to successfully answer all of the questions given. There will be a few questions that require the solution of equations, particularly with regards to foreign exchange.

This section focuses on preliminary economic concepts you should know for your upcoming exam. Note that your upcoming CFA Level 1 exam will not test directly on these basic concepts, but CFA Institute notes that you should have a basic understanding of these topics to ensure success on the more challenging topics that lie ahead.

Supply and Demand

Related Articles
  1. Personal Finance

    What to Expect on the CFA Level I Exam

    The Level I exam for the Chartered Financial Analyst designation can be challenging. Here's what to expect.
  2. Personal Finance

    What To Expect On The CFA Level I Exam

    Becoming a chartered financial analyst requires the passing of three grueling exams covering an array of topics.
  3. Financial Advisor

    Tips on Passing the CFA Level I on Your First Attempt

    Obtain valuable tips and helpful study instructions that can help you pass the Level 1 Chartered Financial Analyst exam on your first attempt.
  4. Managing Wealth

    Microeconomics vs. Macroeconomics: Which Is More Useful for Investment?

    Find out why investors are better off ignoring macroeconomic forecasts, and should instead focus on the lessons that microeconomics can teach them.
  5. Financial Advisor

    How Hard are the CFA Exams?

    Learn about the difficulty of the CFA exams with a description of the tests, some statistics on pass rates and suggestions that can help you pass the exams.
  6. Personal Finance

    How to Ace the CFA Level I Exam

    Prepare to ace the CFA Level 1 exam by studying systematically.
  7. Personal Finance

    What To Do If You Failed Your CFA Exam

    Follow these steps to increase your odds of passing your next CFA exam.
  8. Financial Advisor

    Series 7 Exam Prep: Options

    One of the most challenging topics in the series 7 exam is options. Find out what you need to know before you take the test.
  9. Personal Finance

    What's on the CFA Level II Exam?

    The Chartered Financial Analyst Level II exam is the second of three tests that CFA candidates must pass.
  10. Investing

    The Difference Between Finance And Economics

    Learn the differences between these closely related disciplines and how they inform and influence each other.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center