ECN 104 Chapter 2: Chapter 2
13 Oct 2011
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Document Summary
The scientific method: observation, theory, and more observation: an economist might live in a country experiencing rapid increases in prices and be moved by this observation to develop a theory of inflation. The theory might assert that high inflation arises when the government prints too much money: to test this theory, the economist could collect and analyze data prices and money from many different countries. If growth in the quantity of money were not at all related to the rate at which prices are rising, the economist would start to doubt the validity of his theory of inflation. The role of assumptions: assumptions can simplify the complex world and make it easier to understand. To study the effects of international trade, for example, we may assume that the world consists of only two countries and that each country produces only two goods: economists use different assumptions to answer different questions.
