MAE101 Lecture Notes - Lecture 2: Laundry Service, Normative Economics, Scientific Method
1 Aug 2018
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The scientific method: observation, theory and more observation. Economists use observation and theory just as scientists do. E. g. the theory that inflation is a result of printing more money. This in turn is a much harder examination to control, its not like they can control monetary policy to test outcomes like scientists can drop an item on the ground to test gravity. Often have to look into history to perform these studies. Assumptions can make the world easier to understand. Knowing certain facts may lead us to make different assumptions when studying e. g. reduced i(cid:374)flatio(cid:374) (cid:373)ight take (cid:374)e(cid:449)sage(cid:374)ts a (cid:455)ear or so to (cid:272)ha(cid:374)ge their pri(cid:272)es (cid:271)e(cid:272)ause the(cid:455) do(cid:374)"t do it ofte(cid:374). That"s a(cid:374) assu(cid:373)ptio(cid:374) (cid:449)e ha(cid:448)e (cid:373)ade (cid:271)ased o(cid:374) past e(cid:454)perie(cid:374)(cid:272)es a(cid:374)d k(cid:374)o(cid:449)ledge. The circular-flow diagram = a visual model of the economy that shows how dollars flow through markets through households and firms.
