Understanding Finance and Economic and the Difference

Essex County College

Finance 101-001

Fall 2015

Understanding Finance and Economic and the difference

By

Thelius Lester

Professor Jean-Wilner Alexandre  

        When you think of the New York Financial District, Wall Street will usually come to you first, right? New York is the financial capital of the world, with so much history of our financial and economic systems. Going to Wall Street can give a better understanding of not only the financial and economic systems as well as the difference between the two. Business, finance, economics and accounting usually get categorized as being one in the same but they are different in many ways, yet work hand and hand. During the field trip we went to The Federal Reserve Bank, Goldman Sachs, the Museum of American Finance, the New York Stock Exchange, the Charging Bull and the Alexander Hamilton Place of Burial.

        Finance is the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money as well as other financial assets. Economics is the study of the production and consumption of goods and the cost to produce and obtain those goods. The difference between finance and economics is, finance focuses on an individual companies and investors evaluate risk, returns, debt, earnings, equity, etc. Economics focuses on how a whole country or market is preforming, national policies, taxes, spending, consumer sentiment, and all factors that go into the economy.

         The fiscal policy is when the government adjusts taxes and spending to affect the economy. The monetary policy is when the Federal Reserve adjusts the money supply to directly affect interest rates. “When the Fed tightens policy by draining reserves from the banking system, the noteworthy consequence is a fall in the stock of money. An alternative view is that independent effects come from the asset side of banks balance sheets: i.e., from bank loans… Therefore, when tight monetary policy shrinks the size of the banking sector, it reduces the overall supply of loans... As a result, investments and aggregate demand fall by more than can be accounted for by the conventional money channel." Kashyap, A. K., & Stein, J. C. (1995, June). The impact of the economic decision on financial investment and wealth building is when interest rates are increased directly affecting investments. When interest rates rise, investments fall and when taxes increase, consumption decreases.

        When you think of investments the first things that come to mind are usually stocks but there are so many different types of investments. There are ownership investments meaning you own that investment such as stocks, real estate and businesses. Bonds, CD’s, U.S treasuries are lending investments, where you buy a debt that is to be repaid so you are like an “acting bank”. Alternative investments are venture capitals, commodities and precious metals (most common, gold).  Other types of investments are mutual funds, index funds, hedge funds, etc. Investments means you are spending capital and not holding onto the money. When investments are slowing down, it can decrease economic growth. In China the economic growth feel under 7% for the first time in 6 years since 2009. “Other economic data released on Monday showed disappointing results in investment and industrial production.” MAGNIER, M. (2015, October 18).