Chapter 2 - Economic theories, data and graphs

Question 1

Normative statement def

Answer 1

depends on value judgment, opinion. can’t be supported by facts

Question 2

Positive statements def

Answer 2

Statements about what is, was or will be. Not biased by value judgments

Question 3

Why economists disagree in public discussions

Answer 3

Poor communication or failure to acknowledge their ignorance.

Question 4

Biggest source of public disagreement upon economists and what they should do

Answer 4

Positive/normative distinction. Should make difference between normative advice and positive facts

Question 5

3 things theory consists of

Answer 5

1) Set of definitions about variables (endogenous and exogenous)
2) Set of assumptions (motives, causation, etc.)
3) Set of predictions (or hypotheses)

Question 6

Endogenous variable def

Answer 6

Variable we want to study/explain/understand

Question 7

Exogenous variable def

Answer 7

Other variables that influence the endogenous variable

Question 8

Testing theories 2 things

Answer 8

1) Confronting predictions with evidence

2) Amend the theory if inconsistent with facts

Question 9

2 things that can happen with theory

Answer 9

1) Rejected by data -> put into question

2) Confirmed by data (no matter how unlikely theory is, confirming data will be found)

Question 10

Positive correlation meaning

Answer 10

X and Y move together

Question 11

Negative correlation meaning

Answer 11

X and Y move in opposite directions

Question 12

Correlation vs causality

Answer 12

Correlation -> association

Causality -> X causes Y

Question 13

Reverse causality

Answer 13

X and Y related in a way that is opposite to what we expected

Question 14

Branch of science used in economy

Answer 14

statistics

Question 15

How data can be displayed (2)

Answer 15

Tables or graphs

Question 16

What do we use if we are interested in relative movements of variables

Answer 16

index numbers

Question 17

index number def

Answer 17

Compares changes in some variable relative to some base period

Question 18

index formula

Answer 18

Value of index in given period = absolute value in given period/absolute value in base period x 100

Question 19

Two forms in which economic variables come and def

Answer 19

Cross-sectional data (picture in time)

Time-series data (evolution in time)

Question 20

Scatter diagram def

Answer 20

Points -> shows relationship between 2 variables

Question 21

Scatter diagram interpretations (4) and what they mean

Answer 21

1) Strong correlation : strong relationship
2) Weak correlation : look for alternative factors with stronger relationships
3) No correlation : look for alternative relationship
4) J-shaped association : complex relationship

Question 22

Functional relations 4 ways to express them

Answer 22

1) Verbal statement
2) Mathematical equation
3) Table (numerical schedule)
4) Graph

Question 23

what do we say about variables when graph of relationship between 2 variables is a straight line

Answer 23

linearly related

Question 24

what do we say about variables when graph of relationship between 2 variables is NOT a straight line

Answer 24

non-linearly related

Question 25

4 types of linear relationships

Answer 25

1) Positive slope
2) Negative slope
3) Zero slope
4) Infinite slope

Question 26

4 types of non-linear relationships

Answer 26

1) Positive slope
2) Negative slope
3) Positive then negative
4) Negative then positive

Question 27

Linear or non-linear relationships : which is more common

Answer 27

non-linear

Question 28

How to use the slope

Answer 28

Look for absolute value

Question 29

What concept can the slope be associated with

Answer 29

marginal response (of Y to X)