ECO 101 Lecture Notes - Lecture 1: Chicago Boys, Natural Experiment, Scatter Plot
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Correlation may show a relationship, but not necessarily. Correlation only measures the linear relationship between two variables. 1, -1, these values indicate strong correlation, while 0 indicates weak correlation: cannot measure curve. Social science: we"re studyi(cid:374)g people, (cid:271)ut seeki(cid:374)g to apply s(cid:272)ie(cid:374)tifi(cid:272) (cid:373)ethod to so(cid:272)ial pro(cid:271)le(cid:373)s, make theory, test with observation. Completely lack experimental method: chicago boys- chile, natural experiment. We can use assumptions to simplify reality and create an economic model. It is possible to run experiments with this model. Inherent features of the model should be very different from the real world while the outcomes should mimic the real world. Good assumption: representative household, should know your time frame, sometimes flexible prices work, situationally dependent. Circular flow diagram: flow of goods and services between firms and households, flow of cash. Households sell: give labor, land, etc. Some crazy assumptions with the circular flow model.
