Question

1. What is the Scientific method of Macroeconomics?
2. While no economy is purely Capitalistic or Socialistic, explain each economy.
3. In a Market Economy, what role does the Government play?

Answer 1

The scientific method is a process which is used to study an economic phenomena,provide explanation for the economic phenomena, provide hypothesis for it,and analyse the economic phenomena.To explain economic issues,economists develop hypothesis, collect data and analyse them and then formulate theories based on them.For example to study increasing inflation in a country ,economists may develop a hypothesis of increasing inflation by  collecting data from other countries and analyse the data and then make theories based on it. Economists develop their theories based on real world activities.However economists do not have laboratory controls.Without laboratory experiments, economists look to history and analyse the historical events which is another scientific method.

While no economy is purely capitalistic or socialistic , the main differences between the two types of economies are , in a capitalistic economy the means of production are not owned by public but are owned privately while in a socialist economy the means of production are owned by the state.Capitalism gives encouragement to innovation. It gives importance to individual goals. Socialism focusses on equality of society and lays stress on fairness in the society.

In a market economy there is little government intervention and laws of demand and supply control production of goods . However the government has many roles to play in a market economy. The governments main role is to provide for defense , national security etc which will not be provided by private sector.The government also tries to maintain economic stability and growth in the economy.The government promotes competition in the market and provides public goods and services.The government makes stable rules for the economy and makes adjustment for market results which are not desired.