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18 19at any given moment of time. Even in static analysis, sometimes weconsider a short period rather than a single point. We assume that somechanges take place during the short period. The method of approachwhere we take note of changes in the short period is known ascomparative statics. For example, in comparative statics, we comparethe state of economy at one moment to the state of the economy atanother moment. Marshall’s analysis of supply and demand is a goodexample of comparative statics.In dynamic analysis, we examine the path or process by which theeconomy moves from one state of equilibrium to another. Time elementis an important factor is dynamic analysis. Change is the key word indynamic analysis. For example, investment during a period may dependupon the rate of interest in the previous period. The study of the tradecycle may be given as a good example of dynamic analysis.Stocks and flowsStocks and flows are basic concepts in economics. Stocks can bemeasured at a given point of time. A flow is a quantity that can bemeasured only in terms of a specified period of time. In other words, ithas a time dimension. For example, wealth is a stock and income is aflow.Micro economics and macro economicsEconomic theory can be broadly divided into micro economicsand macroeconomics. The term micro means small and macro meanslarge.In microeconomics, we deal with problems such as the output of asingle firm or industry, price of a single commodity and spending ongoods by a single household.Macroeconomics studies the economic system as a whole. In it,we get a complete picture of the working of the economy. It is a studyof the relations between broad economic aggregates such as totalemployment, saving and investment. We may also say that macroeconomics is the theory of income, employment, prices and money.That is why macroeconomics is sometimes studied under the title“Income and Employment Analysis”.Economics as a scienceWe no longer ask the question whether economics is a science oran art. Science is a systematized body of knowledge. Just as physicsand chemistry are sciences, economics is also a science. We observefacts, conduct experiments and make generalizations in physics andchemistry after testing the results. The same scientific methods arefollowed in economics also. Economics, like all other sciences, studiesthe relationship between cause and effect.Sciences may be broadly divided into physical sciences and socialsciences. Physics and chemistry are examples of physical sciences.Economics is a social science. It studies about a particular aspect ofhuman behaviour. And human behaviour is full of complexity. It is noteasy to study it. So economic science is not as precise and exact as thephysical sciences.But economics has a greater right to be considered as a sciencethan other social sciences like politics or history because in economicswe make use of money as a measuring rod of utility. It is true that it isonly a rough measure but still it enables us to give concrete shape to thelaws of economics. Sometimes, what we say in economics may notcome true in real life. But this is the case with many other sciences. Forexample, we joke about weather forecasts. The weather report in thenewspaper may say that there will be heavy rainfall on a particular day.But there might not be any rain at all on that particular day. On accountof that, we cannot say that meteorology (the science of weather) is nota science. Similarly, if some economic laws do not come true, we cannotsay that economics is not a science.Methods of Economic AnalysisIn economics, broadly we make use of two methods.
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