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An economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical , framework designed to illustrate complex processes.
Robert Hall was the first to derive the effects of rational expectations for consumption. His theory states that if Milton Friedman’s permanent income hypothesis is correct, which in short says current income should be viewed as the sum of permanent income and transitory income and that consumption depends primarily on permanent income, and if consumers have rational expectations, then any ...
Until A Theory of Consumption Function, the Keynesian absolute income hypothesis and interpretation of the consumption function were the most advanced and sophisticated. [2] [3] In its post-war synthesis, the Keynesian perspective was responsible for pioneering many innovations in recession management, economic history, and macroeconomics.
In macroeconomics, the twin deficits hypothesis or the twin deficits phenomenon, [1] is the observation that, theoretically, there is a strong causal link between a nation's government budget balance and its current account balance.
According to the Pollution Haven Hypothesis, this equation shows that environmental regulations and economic activity are negatively correlated, because regulations raise the cost of key inputs to goods with pollution-intensive productions and reduce jurisdictions' comparative advantage in these goods.
An econometric model then is a set of joint probability distributions to which the true joint probability distribution of the variables under study is supposed to belong. In the case in which the elements of this set can be indexed by a finite number of real-valued parameters , the model is called a parametric model ; otherwise it is a ...
Examinations of the Linder hypothesis have observed a "Linder effect" consistent with the hypothesis.Econometric tests of the hypothesis usually proxy the demand structure in a country from its per capita income: It is convenient to assume that the closer are the income levels per consumer the closer are the consumer preferences. [2]
The quantity theory of money (often abbreviated QTM) is a hypothesis within monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation (i.e., the money supply), and that the causality runs from money to prices. This implies that the theory potentially ...