Chapter 2- Theories, Data And Beliefs Flashcards
Variables
Measures that can take on different values
Ex:
- wages
- labour
- GDP
- inflation
- etc
Data
Recorded values of variables
Can take many forms
What do economic models and theories explain?
The causal relationships between variables
What do sets if data do?
Help us test our models and theories
Time-series
Reflects a set of measurements made in sequence at different points in time.
- Can predict future values looking at past values
- Can see progression over time
- time is the independent variable
High frequency data vs low frequency data?
High frequency data is more for a type of data that you look at minute by minute (like stock brokers) while low frequency is more of annual data type
Cross-section data
Recorded values of different variables at a point in time
- many individuals can be involved
- no regard to differences in time
Repeated cross section data
Cross section data recorded at regular or irregular intervals
Longitudinal data
Follow the same units of measure through time
- it is the same sample of population
Longitudinal vs time-series
Longitudinal: overall changes
vs
Time-series: individual changes
Index number
Measure of change in a variable or group of variables over a period of time
- gives clear representation if the change (sometimes, normal numbers aint clear enough)
- measure trends in different areas since any variable can be analysed
- facilitate percentage interpretation of data
- does not depend on units of measure
(Value of t) / (value of base) x 100
Percentage change
To make comparisons between two markets
(Change in value) / (original value) x 100
Usually does not get into account deflation
Composite index numbers
We want to define price index on a group
- makes some worth more than others
- items that weight more will be worth more in calculation
- We end up using consumer price index
Consumer Price Index (CPI)
Measures cost of living
Reflects prices of consumer goods and services as well as the changes
(Cost of product in year t) / (cost of product in base year) x 100
Defines annual inflation and deflation
Inflation
Decrease in the value of money
Increase in annual percentage of CPI
Has an eroding power
Deflation
Annual decrease of CPI percentage
Real price change
Price change percentage taking into account inflation or deflation
What does graphing permit us to possibly do?
Predict certain outcomes since you look at the relationships between variables
What is A hypothesis regarding graphs
It is a theory we try to test by looking at possible relationships between variables.
We look at what causes what.
Regression line
Shows average relationship between economic variables
Econometrics
Used to quantify relationships between variables
Why do we construct models
To test hypothesis and test data
What does a graph allow us to do
We can make the combinations of variables in play, hence allowing us to look at relationships
Simple model
Nothing influences the relationships in play, it is non realistic
