Philosophy of economics is a set of theories that explain economic outcomes, seeking to explain cause-and-effect relationships between economic factors. It includes groups of thought that explain how rational choices lead to macroeconomic outcomes. Economic philosophy studies outcomes and the ways in which macroeconomics responds to different business activities and consumer choices. It is highly subjective and unpredictable, with differing views among political figures. Economists conduct experiments, surveys, and focus groups to prove their theories and develop new hypotheses.
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 deals with the allocation of scarce resources, seeks to explain 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. The originators of the theory propose 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, the prices of commodities such as gasoline fuel will typically be more sensitive to changes in supply than changes in demand. A philosophy of economics also seeks to explain the relationships between two or more factors and predict outcomes based on social behavior.
There are several groups of thought or theory that comprise a philosophy of economics. Some groups may believe that the level of output or gross domestic product of a global economy is not affected by a change in interest rates or prices. Other groups believe that changes in key economic indicators, such as the level of unemployment, directly affect an economy’s level of annual output. Each think tank explains how rational choices lead to a certain macroeconomic outcome.
An economic philosophy is not limited to developing theories and hypotheses for economic results. It also actively studies outcomes and the various ways in which macroeconomics respond to different business activities and consumer choices. As a social science, the field of economics is a bit unpredictable and highly subjective at times. An examination of the differing economic views of major political figures is sufficient to prove the point.
For example, in the United States, the Republican Party generally supports the philosophy that tax cuts will stimulate consumer spending and job creation. On the other hand, the Democratic Party is usually strongly opposed to privatization and generous tax cuts. They believe in greater government control over income distribution and tend to favor increased government spending on social services. The type of social services that the Democratic Party tends to favor typically benefit disadvantaged members of society or contribute to the overall welfare of society, such as environmental causes.
Those studying economics will also look for methods by which they might be able to prove their theories. They may conduct experiments, surveys, focus groups, or other primary research methods to evaluate how and why a particular outcome manifests itself. This can also lead to the development of new hypotheses.
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