Explain Inflation, Hyperinflation, Disinflation and Deflation
Inflation Inflation is the persistent increase in the general price level of goods and services in an economy over a given period of time. Fewer goods and services are bought when price levels rise hence the reduction in purchasing power….
The Construction of Indices Used to Measure Inflation
Since inflation is impactful on the general price level of an economy, it is tantamount to measure inflation using a price index. As such, it is important to understand how a price index is modeled so that inflation rates derived…
Compare Monetary and Fiscal Policy
Monetary policy and fiscal policy refer to government policies and tools used to control macroeconomic variables and financial markets. Whenever economic activities start to slow down, these tools are used to accelerate growth. Similarly, when the economy starts to overheat,…
Functions and Definitions of Money
Definitions of Money According to Growther, money refers to anything that is generally accepted as a means of exchange. What’s more, it is that which at the same time acts as a measure and store of value. John Maynard Keynes…
Confidence Intervals
A confidence interval (CI) gives an “interval estimate” of an unknown population parameter such as the mean. It gives us the probability that the parameter lies within the stated interval (range). The precision or accuracy of the estimate depends on…
The Standard Normal Distribution: Calculation and Interpretation of Probability
The standard normal distribution refers to a normal distribution that has been standardized such that it has a mean of 0 and a standard deviation of 1. The shorthand notation used is:
Shortfall Risk, Safety-first Ratio and Selection of an Optimal Portfolio Using Roy’s Safety-first Criterion
Shortfall Risk Shortfall risk refers to the probability that a portfolio will not exceed the minimum (benchmark) return that has been set by an investor. In other words, it is the risk that a portfolio will fall short of the…
The Lognormal Distribution vs. the Normal Distribution
A variable X is said to have a lognormal distribution if Y = ln(X) is normally distributed, where “ln” denotes the natural logarithm. In other words, when the logarithms of values form a normal distribution, we say that the original…
Continuous Compounding
Continuous compounding applies either when the frequency with which we calculate interest is infinitely large or the time interval is infinitely small. Put quite simply, under continuous compounding, time is viewed as continuous. This differs from discrete compounding where we…
Monte Carlo Simulations
Monte Carlo simulations involve the creation of a computer-based model into which the variabilities and interrelationships between random variables are entered. A spread of results is obtained when the model is run many times – hundreds or thousands of times….
