BCS Written Economics cheat sheet

Price elasticity of demand: E_d = (%ΔQ_d)/(%ΔP); |E_d|>1 elastic, <1 inelastic, =1 unit elastic.

Income elasticity: E_I = (%ΔQ_d)/(%ΔI); E_I>0 normal good, E_I<0 inferior good; E_I>1 luxury.

Cross-price elasticity: E_xy = (%ΔQ_x)/(%ΔP_y); positive for substitutes, negative for complements.

Consumer equilibrium: MU_x/P_x = MU_y/P_y; indifference curve tangent to budget line, MRS = P_x/P_y.

Producer equilibrium: MR = MC; in perfect competition P = MC; shut-down if P < AVC.

Profit maximization: MR = MC and MC rising; total profit = (P − ATC) × Q.

Monopoly: MR = P(1 + 1/E_d); profit-maximizing output where MR = MC, price from demand curve.

Deadweight loss from monopoly: triangle between demand and MC over output from Q_monopoly to Q_competitive.

Cobb-Douglas production Q = AL^αK^β; returns to scale: α+β>1 increasing, =1 constant, <1 decreasing.

GDP (expenditure) = C + I + G + (X − M); GDP (income) = wages + rent + interest + profit.

Real GDP = Nominal GDP / GDP deflator × 100; GDP deflator = (Nominal/Real) × 100.

GDP gap = potential GDP − actual GDP; Okun's law: 1% unemployment above natural rate ≈ 2% GDP gap.

Consumption function: C = a + bY_d; b = MPC, 1−b = MPS; MPC + MPS = 1.

Simple multiplier k = 1/(1−MPC) = 1/MPS; with proportional tax t, k = 1/(1−b(1−t)).

IS curve: Y = C + I + G + NX; LM curve: M/P = L(Y,r); intersection gives equilibrium Y and r.

Phillips curve: π = π^e − β(u − u_n) + v; short-run trade-off, long-run vertical at u_n.

Quantity theory: MV = PY; monetarist inflation π ≈ %ΔM − %ΔY.

Solow growth: sf(k) = (n + δ + g)k at steady state; golden rule maximizes c = f(k) − (n+δ+g)k.

Human Development Index (HDI) = geometric mean of normalized life expectancy, education, and GNI per capita indices.

Gini coefficient ranges 0 (perfect equality) to 1 (perfect inequality); Lorenz curve plots cumulative income share.

Kuznets curve: inequality rises then falls with per capita income (inverted-U hypothesis).

Harrod-Domar: growth rate g = s/v, where s = saving rate and v = capital-output ratio.

Solow-Swan model: long-run growth in output per worker driven by technological progress (g), not capital accumulation.

Rostow's stages: traditional society → preconditions → take-off → drive to maturity → age of high mass consumption.

Lewis dual-sector model: surplus labor transfers from traditional to modern sector until turning point.

Poverty headcount ratio = number below poverty line / total population; poverty gap measures depth.

Purchasing power parity (PPP) adjusts GNI for price-level differences across countries.

Budget deficit = G + transfers − T; primary deficit = deficit − interest payments.

Public debt sustainability: debt/GDP rises if r > g and primary deficit positive.

Tax incidence depends on elasticities: burden falls more on the less elastic side of the market.

Laffer curve: tax revenue rises with rate up to a peak, then falls; beyond peak, rate cuts raise revenue.

Progressive tax: average tax rate rises with income; regressive: falls; proportional: constant.

Fiscal multiplier = ΔY/ΔG; larger when MPC high, tax rates low, and economy below potential.

Crowding out: government borrowing raises interest rates, reducing private investment.

Automatic stabilizers: unemployment benefits and progressive taxes dampen cyclical fluctuations without new legislation.

Value-added tax (VAT) collected at each stage on value added; final burden on consumer.

Money multiplier m = 1/reserve ratio (simple); with currency drain c and reserves r: m = (1+c)/(r+c).

Quantity equation: MV = PY; velocity V = PY/M.

Central bank tools: open market operations, reserve requirements, discount rate, policy corridor.

Expansionary policy: buy securities, lower reserve ratio, lower policy rate → money supply rises, interest rates fall.

Transmission channels: interest rate, credit, asset price, exchange rate, expectations.

Taylor rule: i = r* + π + 0.5(π − π*) + 0.5(y − y*).

Money demand (Keynes): L = L1(Y) + L2(r); liquidity trap when L2 perfectly elastic at low r.

Bank balance sheet: assets = reserves + loans + securities; liabilities = deposits + borrowings + capital.

Inflation targeting: central bank announces numerical target and uses policy rate to hit it.

Comparative advantage: produce good with lower opportunity cost; gains from trade even without absolute advantage.

Tariff effects: consumer surplus falls, producer surplus rises, government revenue rises, deadweight loss from efficiency and consumption distortion.

Terms of trade = export price index / import price index × 100.

Balance of payments: current account + capital/financial account + errors = 0 (with reserves).

Current account = trade balance + net income + net transfers.

Exchange rate regimes: fixed, floating, managed float; purchasing power parity as long-run anchor.

Interest rate parity: i_domestic − i_foreign ≈ expected depreciation of domestic currency.

J-curve: trade balance worsens initially after depreciation, then improves as volumes adjust.

Marshall-Lerner condition: depreciation improves trade balance if |E_x| + |E_m| > 1.

Bangladesh GDP composition: services largest share, industry rising, agriculture declining but still employs large share.

Ready-made garments (RMG) account for over 80% of merchandise exports; concentration risk.

Remittances are a major source of foreign exchange, supporting current account and consumption.

Microcredit pioneered by Grameen Bank; group lending addresses collateral constraints.

Fiscal policy: VAT is the largest tax revenue source; tax-to-GDP ratio remains low relative to peers.

Monetary policy: Bangladesh Bank uses repo, reverse repo, and CRR/SLR to manage liquidity and inflation.

Demographic dividend: large working-age share; depends on education, skills, and job creation.

Climate vulnerability: cyclones, floods, salinity; adaptation and delta plan are policy priorities.

Rohingya influx and LDC graduation (scheduled 2026) create trade preference and aid transition challenges.

OLS estimator: β̂ = (X'X)^{-1}X'y; minimizes sum of squared residuals.

Gauss-Markov: under linearity, exogeneity, homoskedasticity, no autocorrelation, OLS is BLUE.

R² = 1 − SSR/SST; adjusted R² penalizes additional regressors.

t-statistic = β̂/se(β̂); reject H0: β=0 at 5% if |t| > 1.96 (large sample).

Heteroskedasticity: use robust (White) standard errors or weighted least squares.

Autocorrelation: Durbin-Watson statistic near 2 indicates no first-order autocorrelation.

Multicollinearity: high variance inflation factor (VIF > 10) inflates standard errors; drop or combine variables.

Instrumental variables: instrument must be relevant (correlated with regressor) and exogenous (uncorrelated with error).

Difference-in-differences: estimate = (treated post − treated pre) − (control post − control pre).