ECO 304L Chapter Unit 1: Ch 1-4: All Objectives of macro theory
7 Oct 2017
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Why was inflation high in the mid-1970s: positive theory is the science of economics. This means that positive theory makes predictions about how things work in the macro system. American football championship game) predicts the economic outlook for the year. If the afc (american football conference) wins, the economy will do poorly. If the nfc (national football conference) wins, the economy will do well: the afc won in 2013. Steelers and terry bradshaw) while nfc teams won in the (usually) better years of the mid 1980s and 1990s (san francisco 49ers; dallas cowboys). We use economic theory to distinguish between the two. We may observe a correlation, but we need a theory to identify causation. In the football example, there is no existing theory that implies causation. The correlation is almost certainly a coincidence: separating correlation from causation is a key objective of any scientific theory. From a positive perspective, we want to know what is really going on.
