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A Primer on Economics

As an engineering background MBA student, I’m finding macroeconomics to be a fascinating study of the economy as a complex machine. It’s like trying to understand how a city works, with millions of people and businesses all interacting with each other.

Adam Smith

Adam Smith

Adam Smith called this machine the “invisible hand” because he believed that the individual actions of all the agents in the economy would naturally lead to the best overall outcome for society. But how does this work? Economists build models to try to understand the invisible hand. These models are like road maps of reality, helping us to see how different factors interact and affect the overall economy.

One of the things that I find most interesting about macroeconomics is that there is order in the midst of all the complexity. For example, we can see that the annual output of advanced economies tends to oscillate around an upward trend. This suggests that there is some underlying force driving the economy forward. Similarily another interesting finding is that there seems to be a negative relationship between inflation and the rate of unemployment in the short term. This means that when inflation is high, unemployment tends to be low, and vice versa.

Unemployment and Inflation (CPI)

Unemployment and Inflation (CPI)

Of course, there are also some things in the economy that are more difficult to predict. For example, equity prices (stock prices) can be very volatile and unpredictable. Overall, I’m finding macroeconomics to be a challenging but rewarding subject. It’s helping me to develop a better understanding of how the economy works and how different factors can affect it.

Economic Data Resources (last updated 01/07/24)

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