Ch02: First, Understand the Data

Chapter Summary:

For decision maker it is necessary to fulfill following two conditions:

a. What is the variable

b. And form where it came

Every year, government and public sector authorities are publishing hundreds of economic variables. These published variables are mostly seems same, but actually they are not. Because each variable is measure of a specific indicator and have a specific definition. If they are different in nature, then they cannot be use on one another place. For example; inflation, which is broadly measure of change in prices, but the issue is that inflation have three different indicators, i.e. consumer price index (CPI), producer price index (PPI), and personal consumption expenditure deflator. For the analyst and decision makers it is necessary to identify that what they are actually trying to do and either they have chosen right indicator for it or not.

The second major issue discussed in this chapter is that many variables which are used in economic are of encompassing nature. In other words they have many components in them, e.g. gross domestic product (GDP). To deliver a solid and reliable policy, we need to explore the proper components of specific variable. In our case of GDP is sum of major four components, they are personal consumption (C), business investment (I), government spending (G) and net exports (NX). For the decision maker it is necessary to see these components deeply and should have a complete theoretical knowledge for the each component.

Knowing both the basic and key issues surrounding any economic variable will produces better analysis and therefore better and reliable decision by the businesses and policy makers.