Economics and Finance are Interchangeably Used but Separate Subjects

Even though finance and economics are presented and taught to be individual disciplines on their own, these two are actually influencing, informing and interrelate each other. Investors do care about studies related to these subjects for they can significantly influence the market to certain degree. It is imperative for investors to steer clear on “either/or” arguments about finance and economics. Both have valid applications and thus, important.

A Deeper Look for Better Understanding

Generally speaking, economics’ attention is more on a broader scale like how a market, region or the entire country is performing. Aside from that, economics are focused on public policy whereas in finance, it is centered more on industry-or-company-specific. Finance on the other hand is centered on how investors and companies are evaluating risk and return. If we are going to go back in history, economics are more theoretical while finance is more practical. Yet, the distinction becomes less pronounced for the past two decades.

The truth is, the said disciplines may sound converging in some aspects. Professionals and experts in finance and economics are employed in corporations, financial markets and even the government itself. At some point, there will be a separation but, both are more likely to stay important to investors, markets and economy for the following years.

Finance

If we are going to look at finance on different angles, it describes anything that comprises the financial system and the study of the financial instruments. These elements can include but not limited to the following:

  • Management
  • Creation and study of money
  • Credit
  • Banking
  • Investments and;
  • Liability

Finance may also be divided into 3 categories similar to public finance, corporate finance and personal finance.

Finance usually focused on studying interest rates, prices, cash flow as well as financial markets. On a broader sense, finance has the tendency of focusing around topics which include time value of money, cost of capital, rates of return, quantification of risks and optimal financial structures.

What about Economics?

Economics is more of a social science and it focused on studying the consumption, distribution and production of goods and services; with the focus of explaining how its agent interacts and how itself works. Economics also have two main branches and these are the:

  1. Macroeconomics – it studies how aggregate economy is behaving and often studies inflation, GDP, national income and changes in unemployment.
  2. Microeconomics – this studies the economic tendencies or what is more likely to happen when someone makes certain decisions or when certain factors of production have been changed.

Without strong economics, it can make some individuals be in a downward spiral of losing their finances and forced to contact San Diego bankruptcy lawyers.