How does correlation differ from causation? Give an example of each to illustrate your answer.
What will be an ideal response?
Correlation means that two (or more) variables change in a systematic fashion. Economic examples include large cash withdrawals from banks at the end of the month, which coincide with payday and the due dates of bills. (The end of the month does not cause withdrawals.) Causation means that two (or more) variables are related so that a change in one actually causes a change in the other. Economic examples include a change in price leading to a change in the amount of an object that people wish to buy. (Noneconomic examples can be used as well.)
You might also like to view...
The theory of portfolio choice indicates that factors affecting the demand for money include
A) income. B) nominal interest rate. C) liquidity of other assets. D) all the above.
The amount of money that a firm receives from the sale of its output is called
a. total gross profit. b. total net profit. c. total revenue. d. net revenue.