Question

Exercise 1

1. Is the economic activity of a country related to the welfare of its citizens?
2. Spain has higher GDP and a bigger public debt than Norway. Therefore, we could conclude that if a country has a higher public, we could expect a higher high level of GDP. Is this statement true, false or uncertain? Can a general inference be made with this information?
3. Which is the main difference between astronomy and economics?

Answer 1

i. Yes, the economic activities happening in a country have a positive impact on social welfare and hence the standard of living. However, it doesn't take into account the voluntary work happening in the country. Also, as welfare has other aspects as well besides parameters related to economic and monetary transactions, we can conclude that economic activity is necessary but not sufficient condition for the welfare of its citizens.

ii. No, we can not conclude directly that a country with a higher level of public debt has higher debt. This statement is uncertain as this can be true in some cases and false in others.

As debt increases, the country is using external resources to increase fund inflow in the country but it doesn't directly go into GDP conversion. It depends on the economic policies specific to the country. Hence, we can not have a general inference using this statement. We generally study another parameter that is defined as Debt to GDP ratio which is used to study the level of economic growth. Generally, the relation between the ratio and economic growth is an inverted U shape curve.

iii. The main difference between astronomy and economics is that astronomy has all its conclusions and inferences based on the mechanics and classical physics principles but Economics doesn't have any similar specific stream by which the behavioral principles of economics can be tested. Most of the hypotheses are experimental tests and have some inherent errors subjected to microeconomic behavior