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# WHAT STATISTICS DOES?

By Aman Kayal, Academic Content Writer for Economics

Statistics is an indispensable tool for an economist that helps him to understand an economic problem. Using its various methods, effort is made to find the causes behind it with the help of qualitative and quantitative facts of an economic problem. Once the causes of the problem are identified, it is easier to formulate certain policies to tackle it. But there is more to Statistics. It enables an economist to present economic facts in a precise and definite form that helps in proper comprehension of what is stated. When economic facts are expressed in statistical terms, they become exact. Exact facts are more convincing than vague statements. For instance, saying that with precise figures, 310 people died in the recent earthquake in Kashmir, is more factual and, thus, a statistical data. Whereas, saying hundreds of people died, is not. Statistics also helps in condensing mass data into a few numerical measures (such as mean, variance etc., about which you will learn later). These numerical measures help to summarise data. For example, it would be impossible for you to remember the incomes of all the people in a data if the number of people is very large. Yet, one can remember easily a summary figure like the average income that is obtained statistically. In this way, Statistics summarises and presents a meaningful overall information about a mass of data. Quite often, Statistics is used in finding relationships between different economic factors. An economist may be interested in finding out what happens to the demand for a commodity when its price increases or decreases? Or, would the supply of a commodity be affected by the changes in its own price? Or, would the consumption expenditure increase when the average income increases? Or, what happens to the general price level when the government expenditure increases? Such questions can only be answered if any relationship exists between the various economic factors that have been stated above. Whether such relationships exist or not can be easily verified by applying statistical methods to their data. In some cases the economist might assume certain relationships between them and like to test whether the assumption she/he made about the relationship is valid or not. The economist can do this only by using statistical techniques. In another instance, the economist might be interested in predicting the changes in one economic factor due to the changes in another factor. For example, she/he might be interested in knowing the impact of today’s investment on the national income in future. Such an exercise cannot be undertaken without the knowledge of Statistics. Sometimes, formulation of plans and policies requires the knowledge of future trends. For example, an economic planner has to decide in 2017 how much the economy should produce in 2020. In other words, one must know what could be the expected level of consumption in 2020 in order to decide the production plan of the economy for 2020. In this situation, one might make subjective judgment based on the guess about consumption in 2020. Alternatively, one might use statistical tools to predict consumption in 2020. That could be based on the data of consumption of past years or of recent years obtained by surveys. Thus, statistical methods help formulate appropriate economic policies that solve economic problems.