When it comes to the world of finance, you always have to deal with factors that affect money. What’s one of nearest things to money? Economy. Analysts always take the economy into account whenever they make predictions or commentaries regarding the overall market. In this article, we’ll discuss what economics really is, enlightening you of the role in plays in the financial world.
What is Economics?
To simply define it, economics is the study of production, consumption, and distribution of goods and services. This kind of study’s goal is to explain how different economies work, and how their agents interact.
Even if it’s marked as a “social science” and though it’s treated as one of the liberal arts, economics is often very quantitative—that means it’s heavily math-oriented.
How is it Useful?
Now, if you’re wondering why economists choose to make their heads ache with all the numbers, the answer is: economics provides an extremely useful guidance and influence to policy-making at the national level. That is, if they thoroughly understand how consumers and producers react with changing conditions.
Of course, economists have to be really thorough and careful with their study. The way the country treats taxation, regulation, and government spending can have tremendous outcomes. The economist’s job is to give advice and analysis regarding this stuff.
Economics can also help investors to understand the possible repercussions of national policies and events, especially on business conditions.
Now, if you ever plan to choose economics as your career, you might want to jump in the academia. If you become an academic, you have to not only spend your time attempting to teach economic disciplines, but also do tons of research within the field.
You might even have to formulate new theories to explain how the markets work and how the agents interact.
You will also have to be involved in the corporate world. You’re concerns, then, will be more immediate and short-term. If you, as an economist, work for major investment banks and other corporations, you will have to focus on predicting growth, interest rates, inflation, and other such things. These forecasts can be considered as a product, in a way. They can be marketed to clients, for one. They can also be an input for different managers and other people involved in decision-making in a company.
In the Markets
Investors have a sort of love-hate relationship with economists throughout history. There are times when investors listen to economists and heed their advice and prediction. Then, there are also times when economists sit in the back and investors totally ignore them.
Some investors don’t give weight to economists’ predictions and invest into the latest booming sector, while some will keep close tabs on GDP, inflation, and deficits to make informed decisions.
Sometimes, the market in question also matters. For instance, bond investors usually heed economists’ advice more than equity investors.
Economics is important. As mentioned, it’s something that is always taken into account when it comes to analysis. The more you understand how it works, the more you can make good and well-informed decisions.