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Chapter 2 The tools of economic analysis

Chapter 2 The tools of economic analysis. David Begg, Stanley Fischer and Rudiger Dornbusch, Economics , 8th Edition, McGraw-Hill, 2005 PowerPoint presentation by Alex Tackie and Damian Ward. Models and data. Model a framework based on simplifying assumptions

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Chapter 2 The tools of economic analysis

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  1. Chapter 2The tools of economic analysis David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 8th Edition, McGraw-Hill, 2005 PowerPoint presentation by Alex Tackie and Damian Ward

  2. Models and data • Model • a framework based on simplifying assumptions • helps to organise our economic thinking • Data • the economist’s link with the real world • time series • cross section

  3. Real and nominal • Many economic variables are measured in money terms • Nominal values • measured in current prices • Real values • adjusted for price changes compared with a base year • measured in constant prices

  4. Diagrams … help to analyse patterns and trends in data

  5. Diagrams (2) … help to analyse patterns and trends in data

  6. Diagrams (3) … help to analyse patterns and trends in data

  7. Economic models:an example • To organise our thinking we need a simplified picture of reality • focusing on key elements • Quantity of tube journeys demanded = f(Prices, income, preferences)

  8. Relationships Diagrams help economists to explore relationships between economic variables

  9. Evidence in economics • Scatter diagrams help us to confront economic theory with empirical reality • Econometrics takes this further using statistical techniques • Evidence may allow us to reject a theory • or accumulate support for it

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