Research Methods in Economics
Research Methods in Economics ECO 320
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This 3 page Class Notes was uploaded by Waylon Crona on Sunday October 11, 2015. The Class Notes belongs to ECO 320 at Eastern Kentucky University taught by Staff in Fall. Since its upload, it has received 16 views. For similar materials see /class/221443/eco-320-eastern-kentucky-university in Economcs at Eastern Kentucky University.
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Date Created: 10/11/15
IX THE SIMPLE LINEAR MODEL Consider the following questions If there is a one billion dollar increase in disposable income in the United States economy by how much will aggregate consumption expenditures change If disposable income in the United States is going to be 2500 billion next year what will be the level of aggregate consumption expenditures What is the relationship between the costs of rm A and its output level If the rm increased its output by one unit by how much would its costs increase If the rm plans to produce ve thousands units of output in the next month what will be the level of its costs How sensitive is the price of Company Y stock to a general movement in the stock market as indicated by an index such as the Dow Jones Industrial Average If Jack s Restaurant spends an extra 100 per week on radio advertisements what will be the effect on its volume of business When the price of margarine increases by 10 cents per pound what is the effect on the amount of butter consumed Within Jones Manufacturing what is the relationship between the salary paid to a manager and the content of his job as measured by such factors as degree of responsibility and the amount of technical knowledge needed for the job Are males paid more than females in some professions when other factors affecting salary are accounted for Do these questions from various areas of Economics and Business have anything in common Yes If we look at these questions we see that explicit or implicit in each of them are two issues 1 Is there a relationship between one variable and another 2 If so what is the relationship between one variable and another Page l For example does the price of margarine affect the quantity of butter consumed and if so can we estimate or quantify the effect of a given change in the price of margarine on the quantity of butter consumed In brief one is concerned with quantifying relationships between variables The methods discussed in this chapter and modifications thereof are among the most widelyused techniques for such quantification Let us develop the main ideas around an example One is interested in the relationship between the amount spent by consumers on goods and services called consumption and the amount of income available for spending called disposable income We could look at this problem for an individual household or consumer for a group of consumers or for the economy as a whole In the present case we look at the aggregate or macro relationship for the Us economy In Principles of Economics students are introduced to a relationship called quotThe Consumption Functionquot In the typical presentation the consumption function is viewed as a linear relationship between expenditures for consumption and disposable income An example of a consumption function is C407I 1 where C is expenditure on goods and services and I is disposable income The relationship can be depicted graphically as follows Page 2
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