For many, the words “economics” and “finance” bring to mind complicated formulas and jargon, fancy suits, or bad memories of supply and demand graphs from college.

But economics and finance don’t need to be difficult. And you certainly don’t need to know a lot about either to benefit from them. As a manager, employee, or policymaker, even a foundational knowledge of economics and finance can be enough to make more informed decisions that can result in increased profitability, smarter investments, and better public policy.

Here’s a list of five key economic relationships for a business owner or policymaker to remember when making decisions:

1. Price Up, Demand Down

This relationship is the foundation behind those pesky demand curves you may have had to draw in Econ 101, but is absolutely necessary for any business to understand in order to make money.

When a business increases its prices, it will almost always see sales for its product or service fall. This is because consumers prefer to pay less for something, so fewer people will be able to afford the good—hence, “price up, demand down.”

2. Price Up, Supply Up

This is the flipside to the previous relationship. When prices go up, consumers demand less. If the product or service a business is supplying can command a higher price, it’s in the company’s best interest to supply more of it to earn higher revenue. So, price up, supply up. Like demand, its incentives at work here, too.

Related: 5 Reasons Why You Should Study Economics

3. Interest Rates Up, Investment Up

How does a business, household, or country determine how much money to invest? Several factors go into that decision, but probably no other factor is as important as the prevailing interest rate.

Interest is the money received for lending to another party. Or, from the opposite perspective, the money paid to a lender for the right to borrow. The interest rate is then the ratio of money paid as interest to the amount lent or borrowed, usually quoted as a percent. For example, if you pay $5 to borrow $100, the rate is five percent.

As an investor, you want to look for the highest possible rate of return. The higher the prevailing interest rates in your country, the higher your incentive will be to invest. As a result, when interest rates increase, investments typically go up.

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4. Money Supply Up, Interest Rates Down

If interest rates determine investment, what determines interest rates? The interest rate is the “price” of borrowing money and, in economics, prices are usually determined by quantities—such as quantities of goods, quantities of services and, in the case of interest rates, the quantity of available money.

Interest rates are largely determined by the supply of money in the economy. The more money there is available, the less banks and other lenders can demand for the right to borrow that money. If a bank charges too much, potential borrowers can just go to another source to get money. This gives lenders the incentive to all charge around the same amount for access to that money.

This relationship is what gives central banks so much power. A central bank, such as the U.S. Federal Reserve, has the legal right to print money and so effectively controls the supply of money in the economy. If the Fed wants to stimulate the economy, like it needed to during the Great Recession, it could lower interest rates by printing money, pump it into the financial system, and provide businesses the incentive to invest more.

Related: 5 Business Skills Every Professional Needs

5. Economic Growth Up, Unemployment Down

As discussed, the amount of money in the economy plays a major role in determining interest rates. And interest rates largely determine how much businesses and households invest.

Investment is crucial for a business to undertake projects and offer new products and services to consumers. But investment is only one part of the equation. To determine the overall “health” of an economy and the potential for individuals to buy their products, companies also need to know how much domestic consumers, foreigners, and the government are currently spending on goods and services.

On the macro level, the amount spent on consumption, investment, government services, and net exports is known as gross domestic product (GDP). If spending on goods and services is not increasing, or has been decreasing, it may not make sense for a business to bring a new product to market. And if that’s the case, companies may not need as many workers to create such products.

A key link exists between GDP and unemployment. If GDP is growing, it’s likely that more workers are being hired to create products and services.

Using Economics and Finance for Decision-Making

Economics and finance are more complicated than the simple relationships described here, but these offer a rough depiction of how the decisions made by various actors play out in the real world to distribute resources and create an economy. Economics and finance are largely influenced by human motivations. By understanding humans, you may be able to use those insights to improve your household, business, or country.

Learning about economics can help in other ways, too. For example, Harvard Business School Online’s Economics for Managers course focuses on several key skills that are needed to develop successful business strategy. Course objectives include learning to develop effective pricing strategies, identify competitive advantages, and understand the power of network effects to drive demand.

Are you interested in diving deeper into economics? Explore our Economics for Managers course or, if you want to learn business fundamentals more broadly, check out our online Credential of Readiness (CORe) program.

This post was updated on August 22, 2019. It was originally published on February 16, 2016.

Patrick Healy

About the Author

Pat served as a member of the HBS Online Course Delivery Team and worked on the Economics for Managers course for the Credential of Readiness (CORe) program, Management Essentials, and Negotiation Mastery. Pat holds a B.A. in Economics and Government from Dartmouth College. In his free time, he enjoys playing tennis and strumming the guitar.