SCIENTIFIC APPROACH IN THE

EMPIRICAL TESTING OF AN ECONOMIC

THEORY
• Economics is a study that attempts to
explain how an economy operates and how
the consumer attempts to maximize his/her
wants within a limited means.
• Using tools such as Logic, Mathematics
and statistics.
This scientific approach involves the following steps,
1. State the propositions or conditions that are taken as given and
do not need further investigation, as the basic starting point of
investigation. These propositions will serve as the premises upon
which the theory is established.
2. Observe facts in connection with the activity that we want to
theorize.
3. Apply the rules to logic to the observed facts to determine causal
relationship between observed factors and to eliminate facts that
are unnecessary irrelevant.
4. Establish a set of principles such that formulated hypotheses may
be tested as to whether they are valid or not.
5. Use statistics and econometrics as empirical proof in testing the
hypotheses.
 POSITIVE ECONOMICS
VERSUS
NORMATIVE ECONOMICS
POSITIVE ECONOMICS deals with that is- things that are actually
happening such as the current inflation rate, the number of employed
labor, and the level of the Gross National Product.

Gross National Product - the total value of goods produced and

services provided by a country during one year, equal to the gross
domestic product plus the net income from foreign investments.

NORMATIVE ECONOMICS on the other hand, refers to what

should be – that which embodies the ideal such as the the ideal
rate of population growth or the most effective tax system.
 MEASURING THE ECONOMY
Gross Domestic Product (GDP) - the total value of goods produced and
services provided in a country during one year.

The Government plans for a better economy from a perspective

of what the economy has been. Sharping the economy’s future
is changing past and present perspectives extended to the
future. In particular, looking ahead is grounded on past and
present performance and health of the economy. The heart of
economy is production whose value measures both resources
input and output of people. The interplay of resources and
outputs tells how tells how well the economy has performed.