Module 1 - Intro, Diagrams, Inflation Flashcards
Why study economics?
Much of engineering involves solving design problems in the most economical way possible
What are decisions around economic attractiveness based on?
- Market Demand
- Product Price
- Commodity Prices
- Technology Advances
What are key economic principles?
- Money has a time value
- Only differences between alternatives need to be considered
- Benefits exceed costs
- Additional risk shouldn’t be taken without expected return
What is the end of practice convention?
Move all cash flows to end of time period?
What are some issues with the end of period convention?
- Bank fees
- Interest within period
- Inflation (minor)
What is principal?
- Amount of money involved in debt or investment
What is interest (discount) rate?
Cost of borrowing money
Why is a dollar today worth more than tomorrow?
- Interest
- Inflation
What is interest?
Cost of borrowing money
You’re offered 10,000 to you at 6% simple interest to be paid back in 3 years. How much interest will you pay?
$1800
What factors affect interest rate?
Bank of Canada sets overnight rate, based on inflation
What is the consumer price index?
Measure of inflation - costs of things such as gas, food, clothing, etc.
What controls the interest rate?
- Inflation
- Risk
