EconomicsBenjaminMaxedon

WhatisEconomics?

•  Economicsisadisciplinethatexamineshistoricalandpresentdaytrendsinavarietyofdifferent:ieldstomakepredictionsconcerningthefuture.

•  Thatmayhavesoundedlikeaveryvaguedescription,buttheeconomicdisciplinefollowsthestudyofscarcity(supplyvsdemand),howpeopleusetheirresourcestobettertheirsituation,anddecisionmakingonalargeandsmallscaletopredictfutureoutcomes.

•  Mostlyinvolvesusingdatacollectedbybusinessandgovernmenttotesthypothesesaboutwhetheraprogram,activity,event,oroperationwillresultinit’santicipatedeffect.

•  TherearetwomainbranchesofEconomics;Macro(largescale)andMicro(smallscale).

TwoBranchesofEconomics

Macro-Economics

•  Studiesgovernments,industries,banking,andtheebband:lowofthebusinesscycle.

•  Thisisthemostcommonlyreferredtoeconomicdiscipline

•  Helpsdeterminewhyrecessionsanddepressionsoccur,andthecurrentstateoftheworld’seconomies.

•  Itcanalsohelpunderstandhowlargetrends(risinggasprices,immigration,andrisingagesofbabyboomergeneration)willaffecttheeconomy

Micro-Economics

•  Studiesthechoicesofindividuals

•  Helpstounderstandthedecisionmakingprocessofpeopleindifferentclassstructures,andtimeperiodsinlife.

•  Researchhashelpedmeasurethelinkbetweenhealthandeconomicwellbeing,aswellasunderstandingwhypeopleretirewithlessmoneythanthey’dhavehopedto.

Whatis“TheEconomy”?

•  TheEconomyisde:inedas“theinter-relatedproductionandconsumptionactivitiesthataidindetermininghowscarceresourcesareallocated”(Investopedia)

•  Thismeansthatallproductionofgoodsandservicesinacountryorregion,aswellasalloftheconsumptionofgoodsandservicesinthatsamecountryorregionallcontributetothestateofitseconomy.

•  Theeconomyisbasedonthecountry/region’sculture,laws,history,geography,wealth,andavailabilityofnaturalresourcesanditevolvesduetonecessity.

TypesofEconomies

•  TherearethreemaintypesofEconomies:Market-based,Command-based,andGreen.

•  Market-basedeconomiesallowgoodsandservicestofreelythroughthemarketbasedentirelyonsupplyanddemand.Thismethodisfairlystable,duetothebalancingoutofpriceswhenhighdemandleadstoincreasedmoneyandlaboreffortstosatisfyit.

•  Command-basedeconomiesaredependentonacentralgovernmentwhichcontrolstheprice,location,anddistributionofgoodsandservices.Imbalancesarecommonduetothelackoffree-:lowingsupplyanddemand.

•  Greeneconomiesoperateinrelianceuponrenewableenergies.Theirgoalistocutcarbonemissions,relyonalternativeandsustainableenergy,andpreservetheenvironment.

MacroEconomicKeyIndicators

•  Economistsuseseveralkeyindicatorstoevaluatethestateofaneconomy,andmakepredictionsregardingitsfuture.Someofthemostimportantkeyindicatorsare:•  GrossDomesticProduct(GDP)•  PurchasingPowerParity(PPP)•  Gas/Oilprices•  Unemploymentpercentage

GrossDomesticProduct(GDP)•  GDPisthesumtotaldollarvalueofallgoodsandservicesproducedwithinaregionorcountryinaspeci:ictimeperiod(normallyperyear).

•  GDPiscommonlyreferredtoasthesizeofaneconomy.

•  GDPisnormallyexpressedincomparisontoaprevioustimeperiod,forexample:iftheGDPisup8%,thatmeanstheeconomyhasincreased8%relativetothepreviouscycle.

•  TheBureauofEconomicAnalysisestimatesthatthecurrentUSGDPisroughly$18,869.4billion.

•  TherearetwobasicwaystocalculateGDP:theincomeapproach,andtheexpenditureapproach.

•  NegativeGDPgrowthisnormallyasignforeconomistsofatriggeringrecession.

CalculatingGDP

IncomeApproach

•  Fundamentally,theincomeapproachaddsupwhateveryoneearnedinayear.

•  SometimesreferredtoasGDP(I)•  Addsuptotalemployeecompensation,grosspro:itsforincorporatedandnonincorporated:irms,andtaxes.

•  Subtractallsubsidiestoreachthetotal.

ExpenditureApproach

•  Fundamentally,theexpenditureapproachaddsupwhateveryonespentinayear.

•  Thisisthemostcommonapproach

•  Addsuptotalconsumption,investment,governmentspending,andnetexports.

PurchasingPowerParity(PPP)

•  PPPisaneconomictheoryusedtocomparetwocountries’currenciesviaa“marketbasketofgoods”approach.

•  AccordingtothePPPtheory,twocurrenciesareatequilibriumwhenabasketofgoods(chosenproducts)arepricedthesameinbothcountries,whiletakingintoaccounttheexchangerate.

•  OneverycommonexampleistheBigMacIndex.

•  TheBigMacIndexusesthepriceofaMcDonald’sBigMacasit’sbenchmark,andcomparesitsrelativepriceacrosscountriestodetermineeachcountriesPurchasingPower.

OilPrices&Unemployment

•  Oilpricesareanimportanteconomicindicatorduetotheenormoussizeoftheindustry.

•  Whenoilpricesdrop,itshowsadecreaseindemand,andcanindicatinganegativegrowthtrendintheeconomy.Thereverseistrueaswellforwhenoilpricesincrease,itshowsinincreaseindemand,andanindicationofapositivegrowthtrendintheeconomy.

•  Unemploymentdataprovidesalookintothestrengthofthelabormarketinagivenregionorcountry.

•  WhenUnemploymentislow,itshowsanincreaseintheneedforlabortosatisfythepublicdemandforgoods.Thisisapositivetrendinagrowingeconomy.

Supply&Demand

•  ThetheoryofSupply&Demandisbasedontheacceptanceoftwo“laws”;thelawofSupply,andtheLawofDemand.

•  TheLawofSupplystatesthatthehigherthepriceofagood,thehigherquantityofthatgoodwillbemadeavailable,duetochancesofhighrevenues.

•  TheLawofDemandstatesthatthehigherthepriceofagood,thelowerpublicdemandforthatgoodtherewillbe.Withhighprices,comeshighopportunitycosts,makingpeoplelesslikelytopurchaseagoodthatwillcausethemtobeunabletopurchaseorconsumesomethingtheyvaluemore.

•  ThekeyoftheSupply&Demandmodelisto:indequilibrium.

Supply&Demand•  Asyoucanseeonthegraph,

relativetothePriceofthegood(Y-axis),theDemandcurvehasanegativeslope,whiletheSupplycurvehasapositiveslope,followingthetwolawsofSupply&Demand.

•  EquilibriumcanbefoundwheretheSupply&Demandcurvesmeet,markingthehighestPrice,andthehighestQuantity(X-axis)atwhichagoodorservicecanbesold.

EconomicsinBusiness

•  Businessesuseeconomicsformanyreasonsincluding;•  Decidingwhatcountriestodobusinessin•  Creatingapricingstrategyfortheirgoodorservice•  Predictingsales,pro:its,orlossesincertainregionsorcountries•  Communicatingquantityofinventorytobemanufacturedanddistributedtodifferentareas

•  OrchestratingPromotionalstrategieswhentrendsarenegativetoincreasesales

KeyPlayerinEconomics

•  EditorsChoice:AsliDemirgüç-Kunt

•  SheisaTurkisheconomistwhoearnedherM.A.andPh.DfromOhioStateUniversity.

•  SheiscurrentlytheDirectorofResearchattheWorldBank.

•  Havingpublishedover100works,shefocusesonthelinkbetween:inancialdevelopmentand:irmachievementsandeconomicdevelopment.

•  Hermainareasofresearchincludebankingcrises,:inancialregulation,andpublicaccessto:inancialservices.

Economist:JobOutlook

•  TheUSBureauofLaborStatisticsestimatesthatjobsforEconomistswillcontinuetogrowfollowingthenationalaverage:6%.

•  Normallyentry-leveleconomistsneedaMaster’sdegreeineducationalbackground.

•  Themedianpayisjustover$100,000/year,roughly$48.50anhour.

•  ThemostsuccessfullocationforUSbasedeconomistsisintheD.C.area,whichemploysseventimesmoreeconomiststhananyotherstateinthenation.

Conclusion

•  Economicsisanimportantdiscipline,bothinasocialsenseandbusinesssense.

•  Inordertoevaluatetostateofthedomestic,foreign,orglobaleconomy,economistsuseavarietyofindicatorsanddatatools.

•  Theeconomyiswhatkeepsacountryorregioneitherinprosperityorindecline,andchangestotheeconomyaffecteveryone.

•  Thejoboutlookforeconomistsfollowsthenationalaverageat6%,andisapro:itableemploymentopportunity.

Sources(links)

•  https://www.aeaweb.org/resources/students/what-is-economics

•  http://www.investopedia.com/terms/e/economy.asp

•  http://www.investopedia.com/ask/answers/199.asp

•  http://www.investopedia.com/updates/purchasing-power-parity-ppp/

•  http://www.investopedia.com/university/economics/economics3.asp

•  http://www.worldbank.org/en/about/people/a/asli-demirguc-kunt

•  https://www.weforum.org/agenda/2015/07/10-top-women-in-economics/

•  https://www.bls.gov/ooh/life-physical-and-social-science/economists.htm#tab-7