A philosophy of economics explains economic outcomes and seeks to predict them based on social behavior. It includes different groups of thought and actively studies macroeconomics. Political parties have different economic views, and economists use research methods to prove their theories.
A philosophy of economics is a set of theories or hypotheses that explain various economic outcomes. In general, philosophies ask why and how something is. Economic theory and causality, which deal with the allocation of scarce resources, seek to explain the cause and effect relationships between two or more economic factors.
An example of the philosophy of economics in practice is the theory of supply and demand. Whoever formulated the theory proposes that the prices of goods and services are sensitive to fluctuations in supply and demand. There are some products that are more price sensitive than others. For example, commodity prices such as gasoline fuel typically respond more to changes in supply than to changes in demand. A philosophy of economics also seeks to explain relationships between two or more factors and to predict outcomes based on social behavior.
There are different groups of thought or theory that make up a philosophy of economics. Some groups may feel that the level of output or gross domestic product of an overall economy is unaffected by a change in interest rates or prices. Other groups feel that changes in key economic indicators, such as the level of unemployment, directly affect an economy’s annual output level. Each thought group explains how rational choices lead to a particular macroeconomic outcome.
A philosophy of economics does more than just present theories and hypotheses for economic outcomes. It also actively studies these results and the various ways in which macroeconomics responds to different business activities and consumption choices. As a social science, the field of economics is sometimes somewhat unpredictable and highly subjective. An examination of the diverse economic views of leading political figures is sufficient to prove the point.
For example, in the United States, the Republican Party generally maintains the philosophy that cutting taxes will stimulate consumer spending and job creation. On the other hand, the Democratic Party is generally strongly against privatization and generous tax cuts. They believe in more government control over income distribution and tend to favor increased government spending on social services. The type of social service that the Democratic Party tends to favor usually benefits disadvantaged members of society or contributes to the general well-being of society, such as environmental causes.
Those studying economics will also look for methods by which they can prove their theories. They may conduct experiments, surveys, focus groups, or some other primary research method to assess how and why a particular outcome manifests itself. This can also lead to the development of new hypotheses.
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