Top Five Important Elements to Think About When Discussing the Economy

The world economy is ever evolving, but there a few constants that can help us better understand what is happening. Sandeep Mazumder, the William E. Crenshaw Endowed Dean of the Hankamer School of Business, provided a few important things to consider the next time the economy comes up in your conversation.

5. Think on the Margins

When making economic decisions, we should be thinking in terms of the margins. For example, the total cost of going to visit the Eiffel Tower in France might be high for a U.S. citizen, but the marginal cost of going to visit the Eiffel Tower if that U.S. citizen already happens to be in Paris for other reasons, is quite low.

4. The Stock Market can be Volatile

Since stock market data can be noisy and volatile, movements in the stock market index are not always indicative of what’s happening in the economy.

3. Economic Data Moves with Lags

It takes time for policy to impact data and does not happen instantaneously.

2. Observe Trends

When interpreting economic data, we must observe long-term trends, and not overweight short-term data—particularly if they are seasonal.

1. Incentives Matter

The way economic agents operate has everything to do with the incentives they are presented with.