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The Future of Economics and Finance

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[Big Ben, London, United Kingdom - Marchin Nowak]

 

 

- The Ultimate Goal of Economic Science

Economics is concerned with how an economy and its participants function and behave. Economics studies how goods and services are produced, distributed throughout the economy, and consumed by individuals and businesses. Economics also is concerned with how resources are allocated by governments and businesses to satisfy the wants and needs of consumers. One of the key focuses of economics is the study of the efficiency surrounding production and the exchange of goods as a result of incentives and policies that are designed to maximize efficiency. 

Economics is typically broken down into two main categories; one of which is called macroeconomics, which is concerned with the aggregate economy. The other category is called microeconomics, which focuses on individual consumers and businesses. Macroeconomics and microeconomics are the two most general fields in economics. 

The ultimate goal of economic science is to improve the living conditions of people in everyday lives. Economists study how to utilize the available scarce resources to maximize value and thus profits. The concerns of economics today are largely focused on issues such as opportunity cost, consumption and production, borrowing, saving, investments, occupations and employment, trades markets, pricing and human behavior concerning making economic decisions. 

 

- Microeconomics and Macroeconomics

Microeconomics is the study of individuals, households and firms' behavior in decision making and allocation of resources. It generally applies to markets of goods and services and deals with individual and economic issues. Microeconomic study deals with what choices people make, what factors influence their choices and how their decisions affect the goods markets by affecting the price, the supply and demand.

Macroeconomics, study of the behaviour of a national or regional economy as a whole. It is concerned with understanding economy-wide events such as the total amount of goods and services produced, the level of unemployment, and the general behaviour of prices. Macroeconomics is the study of whole economies - the part of economics concerned with large-scale or general economic factors and how they interact in economies. 

Unlike microeconomics - which studies how individual economic actors, such as consumers and firms, make decisions - macroeconomics concerns itself with the aggregate outcomes of those decisions. For that reason, in addition to using the tools of microeconomics, such as supply-and-demand analysis, macroeconomists also utilize aggregate measures such as gross domestic product (GDP), unemployment rates, and the consumer price index (CPI) to study the large-scale repercussions of micro-level decisions.

Microeconomics focuses on supply and demand, and other forces that determine price levels, making it a bottom-up approach. Macroeconomics takes a top-down approach and looks at the economy as a whole, trying to determine its course and nature. Investors can use microeconomics in their investment decisions, while macroeconomics is an analytical tool mainly used to craft economic and fiscal policy.

 

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[Annecy, France - Civil Engineering Discoveries]

- Econometrics and Quantitative Economics

Quantitative economics looks at the measurable characteristics of financial systems. Econometrics is the study of quantitative techniques or procedures used to verify economic theory from quantitative measurements or to make economic decisions. It uses mathematical and statistical methods, such as regression analysis.

Econometrics is the quantitative application of statistical and mathematical models using data to develop theories or test existing hypotheses in economics and to forecast future trends from historical data. It subjects real-world data to statistical trials and then compares and contrasts the results against the theory or theories being tested.  

Depending on whether you are interested in testing an existing theory or in using existing data to develop a new hypothesis based on those observations, econometrics can be subdivided into two major categories: theoretical and applied. Those who routinely engage in this practice are commonly known as econometricians.

 

- Economics and Finance

Economics and finance are interrelated disciplines that inform each other, even if the specifics are distinct. Finance, as a discipline, is derived from economics; it involves assessing money, banking, credit, investments, and other aspects of the financial systems. Finance can be further broken down into three related but separate categories—public finance, corporate finance, and personal finance.

Economics looks at how goods and services are made, distributed, and used, as well as how the economy overall functions, along with the people who drive economic activity. The two main branches of economics are macroeconomics, which looks at the overall economy, and microeconomics, which looks at specific factors within the economy.

In general, the focus of economics is more a focus on the big picture, such as how a country, region, or market is performing. Economics also focuses on public policy, while the focus of finance is more company- or industry-specific. Finance also focuses on how companies and investors evaluate risk and return. Historically, economics has been more theoretical and finance more practical, but in the last 20 years, the distinction has become much less pronounced.

In fact, economics and finance seem to be converging in some respects. Both economists and finance professionals are being employed in governments, corporations, and financial markets. At some fundamental level, there will always be a separation, but both are likely to remain very important to the economy, investors, and the markets for years to come.

 

- Primary Goals of Financial Management

The primary goal of the financial management is to maximize the wealth of owners. All businesses aim to maximize their profits, minimize their expenses and maximize their market share.

Financial management is a process that enables a business to plan, direct, organize, monitor and control its current and future financial resources and events. It involves applying the basic principles of management in financial activities such as purchases, sales, capital expansion, inventory valuation, financial reporting, and profit distribution. 

A business organization is organic in nature, and its successful growth depends on the financial efficiencies of operations and strategies. Therefore, the primary goals of financial management dwell on both short-term and long-term activities that seek to maximize value creation from scarce financial resources.

The long-term objective of financial management is ultimately to help the company maximize profits. In order to do that, a financial manager needs to focus on smaller, more specific goals of financial management: planning, cost containment, cash flow management and legal compliance.

 

 

[More to come ...]

 

 

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