What Every Economics Graduate Should Know: Five Core Skills

The Quality of Economic Education

I am simply in favor of quality education.

Perhaps I am too demanding, but I have standards that every economics graduate should meet, no matter what they studied or where.

Basic knowledge should include the following:

1. Macroeconomics. Understand how GDP is calculated, by which methods, and what value added is. An ordinary economist does not need to train as a top macroeconomics specialist. A macroeconomics specialist should work at the Ministry of National Economy. Yet most of our students write some absurd papers on macroeconomics, because it is the easiest option, papers that have nothing to do with real life, and then believe they can work as a company economist. What is needed here is just the basics.

You could also, of course, ask how fiscal policy differs from monetary policy.

2. Taxation. Understand the basics of taxation: how VAT differs from a sales tax, and how VAT and corporate income tax (CIT) are calculated. All other taxes are simple. The principles for calculating these two taxes are the same all over the world.
3. Corporate finance. How cost of production is calculated, how a company budget is built and what it is for, the main methods of control, and the calculation of key financial indicators. What distinguishes direct costs from variable costs, and indirect costs from fixed costs. How the break-even point is calculated. As for the various ratios, any Excel spreadsheet will calculate them for you today.
4. Excel basics. Nothing better than Excel has yet been invented for this kind of work. So any candidate should at least be able to use the formulas SUMIF, SUMIFS, VLOOKUP, HLOOKUP, ISNA, ISERROR, DATE, YEAR, DAY, NPV, IRR and IF, and know how to build pivot tables. Without this set of functions, there is little of quality you can do in Excel.
5. But the most important thing I require of any candidate is the ability to build the three financial statements from given input data. If a person understands how the three statements are built and how they connect, and can put together a cash flow statement using the indirect method, then everything else is easy. Every economist should also know the principles of double-entry bookkeeping. There is no need to know account numbers; what matters is understanding the principle.

We covered all of this in the second and third years of university.

To illustrate, I will post a problem here:

A construction company builds houses. At the beginning of the period it had materials worth $1 million and cash of $2 million. The assets were financed entirely by equity.

During the period, the company purchased materials worth $2 million and used $2.5 million of materials in construction. Overhead costs included in the cost of production, apart from materials, amounted to $500,000.

During the period, 10 houses were built, each with an area of 200 square meters. During the period, 8 houses were sold at a price of $4,000 per square meter.

Administrative expenses for the period amounted to $500,000.

Half of the houses were sold on deferred payment terms, and no payment for them had been received by the end of the reporting period.

Purchases of materials and all other expenses were paid for during the period, and there were no outstanding payables at the end of the period.

You need to prepare the cash flow statement, the income statement and the balance sheet.

After that, think what you like about our education system. I believe that for national companies to employ competent economists, it is enough to run ordinary tests in these areas and dismiss those who fail. I think about 80 percent would not pass.