ECONOMIC: Common Rules of Thumb

Posted on January 21, 2026 by Dr. David Edward Marcinko MBA MEd CMP™

By Dr. David Edward Marcinko; MBA MEd

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Common Economic Rules of Thumb

Here are some widely used heuristics in economics:

Growth & Investment

  • Rule of 70: To estimate how long it takes for an economy to double in size, divide 70 by the annual growth rate. For example, at 2% growth, GDP doubles in 35 years.
  • Okun’s Law: For every 1% drop in unemployment, GDP increases by roughly 2% — a rough link between labor and output.
  • Taylor Rule: A guideline for setting interest rates based on inflation and economic output gaps. Central banks use it to balance inflation and growth.

Inflation & Employment

  • Phillips Curve: Suggests an inverse relationship between inflation and unemployment — lower unemployment can lead to higher inflation, and vice versa.
  • NAIRU (Non-Accelerating Inflation Rate of Unemployment): The unemployment rate at which inflation remains stable. Going below it may trigger rising prices.

Fiscal & Monetary Policy

  • Balanced Budget Multiplier: Increasing government spending and taxes by the same amount can still boost GDP — because spending has a stronger immediate effect.
  • Debt-to-GDP Ratio Threshold: Economists often flag a ratio above 90% as a potential risk to economic stability, though this is debated.

Trade & Exchange

  • Purchasing Power Parity (PPP): Over time, exchange rates should adjust so that identical goods cost the same across countries — a rule used to compare living standards.
  • J-Curve Effect: After a currency devaluation, trade deficits may worsen before improving due to delayed volume adjustments.

Trade

  • Leading Indicators: Metrics like stock prices, manufacturing orders, and consumer confidence often signal future economic shifts.
  • Recession Rule of Thumb: Two consecutive quarters of negative GDP growth typically indicate a recession — though not officially definitive.

These rules simplify complex relationships, but they’re not foolproof. They’re best used as starting points for analysis, not as rigid laws.

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J CURVE: The Economics Paradox

Posted on October 4, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

IN PRIVATE EQUITY AND MEDICINE

By Staff Reporters

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PRIVATE EQUITY

In private equity, the J curve is used to illustrate the historical tendency of private equity funds to deliver negative returns in early years and investment gains in the outlying years as the portfolios of companies mature.

And, according to Wikipedia, in the early years of the fund, a number of factors contribute to negative returns including management fees, investment costs and under-performing investments that are identified early and written down. Over time the fund will begin to experience unrealized gains followed eventually by events in which gains are realized (e.g., IPOs, mergers and acquisitions, leveraged recapitalizations).

Historically, the J curve effect has been more pronounced in the US, where private equity firms tend to carry their investments at the lower of market value or investment cost and have been more aggressive in writing down investments than in writing up investments. As a result, the carrying value of any investment that is under performing will be written down but the carrying value of investments that are performing well tend to be recognized only when there is some kind of event that forces the PE to mark up the investment.

The steeper the positive part of the J curve, the quicker cash is returned to investors. A private equity firm that can make quick returns to investors provides investors with the opportunity to reinvest that cash elsewhere. Of course, with a tightening of credit markets, private equity firms have found it harder to sell businesses they previously invested in. Proceeds to investors have reduced. J curves have flattened dramatically. This leaves investors with less cash flow to invest elsewhere, such as in other private equity firms. The implications for private equity could well be severe. Being unable to sell businesses to generate proceeds and fees means some in the industry have predicted consolidation among private equity firms.

MEDICINE

In medicine, the “J curve” refers to a graph in which the x-axis measures either of two treatable symptoms (blood pressure or blood cholesterol level) while the y-axis measures the chance that a patient will develop cardiovascular disease (CVD). It is well known that high blood pressure or high cholesterol levels increase a patient’s risk.

Paradoxically, what is less well known is that plots of large populations against CVD mortality often take the shape of a J curve which indicates that patients with very low blood pressure and/or low cholesterol levels are also at increased risk.

CITE: https://www.r2library.com/Resource

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