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Causality is the relationship between causes and effects. [1] [2] While causality is also a topic studied from the perspectives of philosophy and physics, it is operationalized so that causes of an event must be in the past light cone of the event and ultimately reducible to fundamental interactions.
Chapter 1, "The Lesson", explains that economics is a field filled with fallacies because of the difficulties inherent in the subject and the special pleading of selfish interests. [3] Every group has economic interests antagonistic to other groups.
In nature and human societies, many phenomena have causal relationships where one phenomenon A (a cause) impacts another phenomenon B (an effect). Establishing causal relationships is the aim of many scientific studies across fields ranging from biology [1] and physics [2] to social sciences and economics. [3]
Causality is an influence by which one event, process, state, or object (a cause) contributes to the production of another event, process, state, or object (an effect) where the cause is at least partly responsible for the effect, and the effect is at least partly dependent on the cause. [1] The cause of something may also be described as the ...
Causation in economics has a long history with Adam Smith explicitly acknowledging its importance via his (1776) An Inquiry into the Nature and Causes of the Wealth of Nations and David Hume (1739, 1742, 1777) and John Stuart Mill (1848) both offering important contributions with more philosophical discussions.
The earlier term for the discipline was "political economy", but since the late 19th century, it has commonly been called "economics". [22] The term is ultimately derived from Ancient Greek οἰκονομία (oikonomia) which is a term for the "way (nomos) to run a household (oikos)", or in other words the know-how of an οἰκονομικός (oikonomikos), or "household or homestead manager".
Technically, it is an unpredictable change in exogenous factors—that is, factors unexplained by an economic model—which may influence endogenous economic variables. The response of economic variables, such as GDP and employment, at the time of the shock and at subsequent times, is measured by an impulse response function. [1]
In economics, a sunspot equilibrium is an economic equilibrium where the market outcome or allocation of resources varies in a way unrelated to economic fundamentals. In other words, the outcome depends on an "extrinsic" random variable , meaning a random influence that matters only because people think it matters.