Macroeconomics Introduction
Chapter 2 – Thinking Like an Economist
• The economist as scientist o They devise theories, collect data, and then analyze these data in attempt to verify or refute their theories. o Scientific method = the dispassionate development and testing of theories about how the world works. o Although economist use theory and observation like other scientists, they face an obstacle that makes their task especially challenging: In economics, conducting experiments is often difficult and sometimes impossible. o To find a substitute for laboratory experiments, economist pay close attention to the natural experiments offered by history. o Economist make assumptions for the same reason: assumptions can simplify the complex world and make it easier to understand. o The art scientific thinking: deciding which assumptions to make. o Economists use different assumptions to answer different questions. o Economist also use models to learn about the world, but instead of being made of plastic, they are most often composed of diagrams and equations. o As we use models to examine various economic issues throughout the book, we will see that all the models are build on assumptions. o All models – simplify reality to improve our understanding of it.
• Circular-flow-diagram o A visual model of the economy that shows how dollars flow through markets among households and firms.
• The economist as policy advisor o Positive statements are descriptive – they make a claim about how the world is. o Normative statements are prescriptive – they make a claim about how the world ought to be.
• Why economist disagree o Economists may disagree about the validity of alternative positive theories about how the world works. o Economist may have different values and therefor different normative views about what policy should try to accomplish.
GDP – measuring a nation´s income
• The statistic might measure the total income of everyone in the economy (GDP),
• The economist as scientist o They devise theories, collect data, and then analyze these data in attempt to verify or refute their theories. o Scientific method = the dispassionate development and testing of theories about how the world works. o Although economist use theory and observation like other scientists, they face an obstacle that makes their task especially challenging: In economics, conducting experiments is often difficult and sometimes impossible. o To find a substitute for laboratory experiments, economist pay close attention to the natural experiments offered by history. o Economist make assumptions for the same reason: assumptions can simplify the complex world and make it easier to understand. o The art scientific thinking: deciding which assumptions to make. o Economists use different assumptions to answer different questions. o Economist also use models to learn about the world, but instead of being made of plastic, they are most often composed of diagrams and equations. o As we use models to examine various economic issues throughout the book, we will see that all the models are build on assumptions. o All models – simplify reality to improve our understanding of it.
• Circular-flow-diagram o A visual model of the economy that shows how dollars flow through markets among households and firms.
• The economist as policy advisor o Positive statements are descriptive – they make a claim about how the world is. o Normative statements are prescriptive – they make a claim about how the world ought to be.
• Why economist disagree o Economists may disagree about the validity of alternative positive theories about how the world works. o Economist may have different values and therefor different normative views about what policy should try to accomplish.
GDP – measuring a nation´s income
• The statistic might measure the total income of everyone in the economy (GDP),