Preparing for Economics in CFA L1

Economics module for CFA

Lets first understand the scope of Economics.

Wikipedia description of Economics says – It is the social science that studies economic activity to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an economy.

While this definition is good to start, I would rather define economics as a study of demand and supply of anything. Any concept in Economics starts and ends with Demand and Supply. If a candidate is clear with Demand and Supply concepts, all the other concepts in Economics would be a cake-walk 🙂 At a more refined level, Economics is divided into two broad sections – Microeconomics and Macroeconomics, the details of which are described below:

MicroEconomics deals primarily with the demand and supply psyche of individuals. This section deep dives into price dependency of demand and supply, market behavior of buyers and suppliers in various forms of market (like competitive, monopoly, oligopoly etc) and the concepts of optimizing production in the firm.


Unlike MicroEconomics which deals more at the micro level, MacroEconomics deals primarily at a broader economic level. This section deals with the concept of Gross Domestic Product (GDP), Fiscal Deficit, Trade Deficit etc. Key area in this section is Monetary Policy ( like interest rates in the economy which is controlled by the RBI) and Fiscal Policy (like NREGA, Building of Infrastructure, Subsidized rice rate etc which is controlled by the GoI)

From the CFA L1 perspective, Economics is one of the easiest section with a good 10% weightage (24 questions). The beauty of this section is that most of the concepts are easy to relate to with everyday real life examples. GDP, Repo-rates, Fiscal Deficit, Monopoly, Inflation and so many other such terms are thrown at us in our everyday interactions. Ideally you should approach this section at the fag end of your CFA preparation and focus primarily on the macro economics (IS-LM Curve etc) which is relatively hard to grasp. Try and score above 70% in this section such that you can balance your poor scores in the harder sections 🙂

Lastly aspirants should also approach this section from the placement perspective. This is one of the favorite sections of any interviewer in the financial domain. Make sure you know the repo-rate, reverse repo-rate, CRR and the GDP rate of India before you sit for the interview 🙂