20. AP Textbook Notes

21. 29. Five steps in Scientific Method Observe real world facts Formation of a possible explanation, theory. Test theory by comparing outcomes of events to predictions. Accept, reject, or modify theory Continue testing against facts to determine if it’s a law or principle which should be incorporated into models.

22. 30. What is theoretical economics? Deriving theories and principles by systematically arranging facts, interpreting them, and generalizing from them.

23. 31. What is policy economics? The recognition that theories and data can be used to formulate policies or courses of action based upon principles to address economic policies.

24. 32. What are steps in creating policies? State goal. For example increase employment. Determine possible options. For example reduce business taxes, lower interest rates, and/or provide government subsidies. Implement and evaluate outcomes.

25. 33. What are the six broad social goals? Economic Freedom Economic Growth Economic Efficiency Economic Equality Economic Stability Economic Security

26. 34. What is important in considering the goals? Different economic systems, societies and/or nations define the various economic goals differently. For example in Cuba and other centrally planned systems economic equality is determined by the outcomes. In the US and other mixed and free systems economic equality is about opportunity.

27. 35. What role does bias play in determining policies All people have biases which influence their reasoning. For example, republicans then to dislike the idea of bigger government and they are more apt to oppose seeing government programs as solutions to economic policies. Democrats however are generally more supportive of political or public policy solutions to economic prpblems.

28. 36. What is the fallacy of Composition? The belief that what is true for one individual or group is true for other individuals or groups as a whole. For example, just because one business in an industry is doing well does not mean all businesses in that industry are. http://www.youtube.com/watch?v=gE4IW_0G KNQ

29. 37. What is Post Hoc Fallacy? Just because event “A” preceded event “B” does not mean that “A” caused “B”.

30. 39. Contrast correlation versus causation Correlation is that there is some association between two variables. For example people with higher education tend to have higher incomes. Causation is the belief that the higher education results in the higher incomes Reality is that there may be other factors that explain the correlation and that the income levels are not the result of the education.