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Understanding indexes and variables for your economics homework.


It’s important to take the time to understand indexes and variables when you are completing your economics homework.


Variables In Economics

Each of the indexes explored below is created by exploring various variables. Variables are the different measures of value that are figured into each index below. By focusing on certain variables in each index explored below, it’s possible to narrow the approach so that only the important data is being attended to in each index. For example, an important economic index measuring the financial health of a company would never include a measure of company birthday parties, which, as far as we know, is completely unrelated to economics or the production, profit, prices, employment, or performance of a company. So it is important to realize that many variables are not examined when we are looking at the big picture of the economics of a country or a company, such as in the indexes below.


Indexes In Economics

In the field of economics, indexes are a measure of statistical change. An index represents an entire group of data amassed from a variety of variables. Data for indexes can come from a variety of sources and may be compiled from a wide array of variables. Common variables included in indexes are:

  • Prices
  • Employment
  • Productivity
  • Profit
  • Company performance

Economic health is tracked through the use of economic indices (plural of index). Indices can track financial health from a variety of perspectives such as global economic perspective or the United States economic perspective. You’re probably familiar with most of the indices explored below. These indices are used as common language that indicates the strength or weakness of the economy. We’ve all heard discussion of the jobs index indicating a strong or weak economy or the S&P 500 showing growth.

Indexes are like short cuts that help us understand more global information about the economy through analysis of many smaller variables that would be difficult to examine individually. Here are some examples:

  • Global Dow – global index tracking select global companies t o predict economic trends.
  • NASDAQ Composite – global index tracking select international and global companies to evaluate and predict trends.
  • Dow Jones Industrial Average – track primarily United States markets.
  • S&P 500 – track primarily United States markets.
  • Consumer Price Index – tracks price variation in consumer goods and helps to adjust taxes, interest rates, and salaries.
  • Gross National Product Deflator Index (or real GDP) – measures the prices of everything produced domestically.
  • Labor Market Index/Job Index – Help establish job market strength and market performance.
  • Big Mac Index – Index in the Economist that establishes the relative cost of a Big Mac around the world.
 

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