How does correlation differ from causation? Give an example of each to illustrate your answer.
What will be an ideal response?
Correlation means that two (or more) variables change in a systematic fashion. Economic examples include large cash withdrawals from banks at the end of the month, which coincide with payday and the due dates of bills. (The end of the month does not cause withdrawals.) Causation means that two (or more) variables are related so that a change in one actually causes a change in the other. Economic examples include a change in price leading to a change in the amount of an object that people wish to buy. (Noneconomic examples can be used as well.)
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Which of the following goods is more likely to be excludable?
A) a chocolate bar B) a concert at Times Square C) national defense D) ocean breeze
An increase in capital formation that expands long-run aggregate supply will
a. increase output and decrease prices. b. increase both output and prices. c. decrease both output and prices. d. decrease output and increase prices.
Argentina's experience since 1990 suggests that adopting a currency board imposes strict discipline on the country's fiscal policies.
Answer the following statement true (T) or false (F)
If a firm sells 10 units of output at $100 per unit and 11 units of output when price is reduced to $98, its marginal revenue for the last unit sold is
A. $2. B. $89. C. $10. D. $78.