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Tools for Economic Analysis

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Understanding how to analyze the economy is a crucial skill in today's world.

Economic analysis is an important skill for anyone interested in understanding business, finance or this morning's newspaper. There are many ways to practice economic analysis. Below are the most useful and popular methods.

  1. Models and Theories

    • Like scientists, economists and economic analysts observe the world and construct theories about why things happen or whether specific relationships exist. After an economist constructs a theory, he tries to find information that supports or disproves his theory. Although an economist can never prove her theory definitively, her theory becomes more persuasive as she finds more evidence to support it..

    Graphs

    • Creating a graph is a great way for economic analysts to show a relationship between two variables. For example, an economist who wants to analyze unemployment statistics over 50 years can create a graph with the year (e.g. 2000, 2001) on the x-axis and the rate of unemployment on the y-axis.

    Mathematical Analysis

    • Most modern-day economic analysis involves a lot of mathematical calculation. One popular mathematical calculation is linear regression analysis (LRA). LRA allows economists to determine the extent to which one variable affects the others. For example, if you want to know how much the weather affects attendance at baseball games and the happiness of the fans at the game, you can run a LRA. Such analysis is complicated, but rigorous study of mathematics makes it a lot easier.

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