I’ve only taken a handful of economic classes so take what I say with a grain of salt. A lot of economic theory involves graphs consisting of two or more lines. An example is the price-quantity curve where the demand and supply of a product can be graphed against price.If the government increases inflation, you can change the demand curve to see what price consumers will now want to purchase at. The idea that you can graph any economic action is where theory helps determine probable outcome.
The largest issue I have with these graphs and economics in general is that it assumes humans are 100% rational. It doesn’t take a lot of thought to conclude that people aren’t rational. However, that’s assumption is the only way these graphs work.
A “theory” delineates a system. That system could be ideological, mathematical, or scientific in nature. A theory is the practice of the system as it is in a perfect world, as in, the theory on paper is without the applied exposure to human error. Most often, a system in theory is quite different from an applied system. The applied system is subject to variables that were not considered during the delineation of the theory.
However, theory, as it does delineate the steps of a system, in this case an economic system, can trace the outcome from its final action backward to its nascence. This allows economists to observe the steps of cause and effect that guide the theoretical trajectory from strategy, to implementation, to action.
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