Suppose economists at the Department of Finance in Ottawa employ an economic model that predicts the effects of an increase in the GST.After implementation of the change,researchers find that the empirical data rejects the prediction.They are likely to
A)reject the empirical data as faulty because it did not support the theory.
B)modify the theory in light of this newly acquired empirical knowledge.
C)modify the prediction in light of the new evidence.
D)ignore the empirical evidence and continue using the model.
E)modify the data to suit the definitions and assumptions.

Question

Quizplus · Accepted Answer

When faced with empirical data that rejects a predicted outcome from an economic model, economists are likely to modify the theory in light of the new empirical knowledge. This is because empirical evidence is crucial for validating economic theories and models, and any conflict between the two must be addressed through modification of the theory. Rejecting the empirical data or ignoring it is not a viable option, and modifying the prediction or modifying the data itself would not address the underlying problem with the original theory.

Suppose Economists at the Department of Finance in Ottawa Employ