Short Quiz Answers

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johnkarls
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Joined: Fri Jun 29, 2007 8:43 pm

Short Quiz Answers

Post by johnkarls »

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Editorial Note = The following questions are offered by someone who majored in economics before heading to law school (Yours Truly) to provide context for how a psychologist could win the Nobel Prize for economics.

Question 1

What does the Latin phrase “ceteris paribus” mean?

Answer 1

Everything else is the same -- in other words, the influence of any other factors is assumed away.

Question 2

Why was “ceteris paribus” famous in academic circles?

Answer 2

It is the assumption that is constantly made by theoretical economists in stating a theory.

When used by them, the “ceteris paribus” assumption includes such elements as perfect knowledge, rational decision making, instantaneous adjustments, etc.

Question 3

Why did it become a derogatory term beginning in the 1960’s? Did this have anything to do with MIT’s Economics Department permanently displacing Harvard’s at the top of the list?

Answer 3

It became a derogatory term because the “ceteris paribus” assumption was always false.

Accordingly, economics began to focus on measurements that would ascertain the extent to which the theory was true and the extent to which, due to the falsity of the “ceteris paribus” assumption, the theory itself was false.

And, yes, MIT’s Economics Department led the charge in measuring things!!!

Question 4

Why have economics students historically hated mathematics students?

Answer 4

Once the quantitative-measurement gurus took over the Economics profession, anyone flunking out of a mathematics program could simply switch to economics and head the class!!!

Question 5

What is the difference between Macro- and Micro-Economics?

Answer 5

Macro-economics focuses on the entire economy and, for example, the effects of interest rates, governmental deficits, etc., on the performance of the entire economy.

Micro-economics focuses on the behaviour of individual components. For example, what would an individual consumer be likely to do if the price of gasoline increases, or what would a particular business be likely to do if the price of its products increases.

Question 6

What is a multiple regression analysis?

Answer 6

It calculates the correlations between, on the one hand, various factors and, on the other, an observed fact. For example, it can calculate the correlations between, on the one hand, humidity, temperature, atmospheric pressure, etc., and, on the other hand, whether precipitation is occurring.

Incidentally, the correlations for each of the factors (humidity, temperature, and atmospheric pressure in the example) will almost certainly total less than 100%. This will spur thought about what other factors might also be correlated with the observed fact.

Question 7

Are multiple-regression analyses used in both Macro- and Micro-Economics?

Answer 7

Yes.

Question 8

After the empirical data is gathered to make possible a multiple-regression analysis of what factors have the highest correlations with the observed fact, is it proper to conclude that the correlative factors are causative or is there still a chance that the correlations are coincidence?

Answer 8

It is NOT proper to conclude whether a correlative factor is causative or coincidental without further investigation.

Question 9

In other words, do we still need a David Kahneman to investigate whether the correlations are causative or coincidence?

Answer 9

Of course!!!

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