Worth: Mankiw Economics 5e CHAPTER TW O The Data of macroeconomics It is a capital mistake to theorize before one has data Insensibly one begins to twist facts to suit theories, instead of theories to fit facts. Sherlock holmes Scientists, economists, and detectives have much in common: they all want to figure out what's going on in the world around them. To do this, they rely on both theory and observation. They build theories in an attempt to make sense of what they see happening. They then turn to more systematic observation to eval- uate the theories validity. Only when theory and evidence come into line do they feel they understand the situation. This chapter discusses the types of obser vation that economists use to develop and test their theories Casual observation is one source of information about what's happening in the economy. When you go shopping, you see how fast prices are rising. When you look for a job, you learn whether firms are hiring. Because we are all partic ipants in the economy, we get some sense of economic conditions as we go bout our lives A century ago, economists monitoring the economy had little more to go on than these casual observations. Such fragmentary information made economic policymaking all the more difficult. One persons anecdote would suggest the economy was moving in one direction, while a different persons anecdote would suggest it was moving in another. Economists needed some way to com- bine many individual experiences into a coherent whole. There was an obvious solution: as the old quip goes, the plural of"" is"data Today, economic data offer a systematic and objective source of information and almost every day the newspaper has a story about some newly released statis- tic. Most of these statistics are produced by the government. Various government agencies survey households and firms to learn about their economic activity- how much they are earning, what they are buying, what prices they are charging, whether they have a job or are looking for work, and so on. From ese sur various statistics are computed that summarize the state of the economy. Econo- mists use these statistics to study the economy; policymakers use them to moni- tor developments and formulate policies This chapter focuses on the three statistics that economists and policymakers use most often. Gross domestic product, or GDP, tells us the nations total income User JOENA: Job EFF01418: 6264_ch02: Pg 15: 24933 #/eps at 1004 I Tue,Feb12,20028:404MUser JOEWA:Job EFF01418:6264_ch02:Pg 15:24933#/eps at 100% *24933* Tue, Feb 12, 2002 8:40 AM Scientists, economists, and detectives have much in common: they all want to figure out what’s going on in the world around them.To do this, they rely on both theory and observation.They build theories in an attempt to make sense of what they see happening.They then turn to more systematic observation to eval￾uate the theories’ validity. Only when theory and evidence come into line do they feel they understand the situation.This chapter discusses the types of obser￾vation that economists use to develop and test their theories. Casual observation is one source of information about what’s happening in the economy.When you go shopping, you see how fast prices are rising.When you look for a job, you learn whether firms are hiring. Because we are all partic￾ipants in the economy, we get some sense of economic conditions as we go about our lives. A century ago, economists monitoring the economy had little more to go on than these casual observations. Such fragmentary information made economic policymaking all the more difficult. One person’s anecdote would suggest the economy was moving in one direction, while a different person’s anecdote would suggest it was moving in another. Economists needed some way to com￾bine many individual experiences into a coherent whole.There was an obvious solution: as the old quip goes, the plural of “anecdote” is “data.” Today, economic data offer a systematic and objective source of information, and almost every day the newspaper has a story about some newly released statis￾tic. Most of these statistics are produced by the government.Various government agencies survey households and firms to learn about their economic activity— how much they are earning, what they are buying, what prices they are charging, whether they have a job or are looking for work, and so on. From these surveys, various statistics are computed that summarize the state of the economy. Econo￾mists use these statistics to study the economy; policymakers use them to moni￾tor developments and formulate policies. This chapter focuses on the three statistics that economists and policymakers use most often. Gross domestic product, or GDP, tells us the nation’s total income | 15 The Data of Macroeconomics 2CHAPTER It is a capital mistake to theorize before one has data.Insensibly one begins to twist facts to suit theories, instead of theories to fit facts. — Sherlock Holmes TWO