Many of is are often tempted to dabble in Economic theorizing because of the impression that we get from self- styled economist that logic and common sense are all you need to expound economic theories. Take some some popular economic opinion now a days. A business executive was heard to say: those people at the bank should have known better. When they issued that blessed circular, they crested a credit squeeze, making it difficult, if not possible, for business men to borrow what they needed for capital expenditures. With a decrease in business investment, the total income employment of the nation naturally dropped. The cb should lift that circular, if it wants to develop the economy. Statements like these used to earn for this business man the title economist lavishly conferred to him by the unknowing press.

Take another econmist he was the prototype of the politician in the old society. In his desire to qin the acclaim of the masses, he used to attack any tax measure indiscriminately , they want to collect more taxes at the expense of the consuming public and the investing firms. What we need mow is more spending by the consumers and private business so that both agricultural and industrial production could be stimulated. I have a friend doing his business he wanted to become an entrepreneurship he want to excell in that particular ways of business and that is good. The government's public expenditures program are always inflationary because they merely dole out purchasing power without correspondingly increasing the production of goods and services. Again presto, this politician used to immediately reffered to as a tested economist.

These economic commentaries look twntalizingly logical and common- sensical. But disillusionment quickly follows such as enchantment with the ease of economics when one realizes that some theory defending a view completely opposed to any one of the theories above is equally common sensical. Take a tax issue. A defender of the Administration might counter, increases in the income tax rates are indespensable for our development effort. The government is committed to spend millions of money on infrastructures such as roads, bridges, and dams in order to facilitate the production of more goods and services. these government expenditures must be financed by increase tax revenues, not by the printing of more money via additional borrowing from the baks because the latter inflationary.

The empirical gap

All the statements above are typical examples of mere hypotheses which have to be tested by the use of empirical data before they can become theories. The legitimate economist of course must start qith imagination common sense and logic . But he must go a step further than the businessman, politician or commentator. He must prove that his theory can best explain the economic phenomena actually observed and, therefore can best predict the future movements of these same economic phenomena. Herein lies the big leap from common sense to science. Once certain cause and effect relationships about economic events are postulated from common aense and logic, the practioner of the science of economics is ready to test the validity of the theories by what is known as statistical inference. This testing of hypotheses about economic relationships can be carried out olny with the aid of the tool called econometrics.

Econometrics

Economic measurement but there are different types. The important branch of national income accounting involves a great deal of economic measurement. But national income account per se is not econometrics.the recording 9f financial transactions by the business accountant is a very useful type of economic measurement. But financial accounting is not econometrics. Is a type of economic measurement which establishes quantitative relationships among economic variables with the use of statistical methods. Statistics is essentially concerned with the study of relationships among variables. Therefore is the application of statistics of economic analysis.

General types of economic relationships that uave been tested by econometric

1. The determinants of the demand for a certain products

2. The relationships between inputs and outputs production functions amd cost functions.

3. Macro- economic relationships the response of consumption to income changees, consumption function the response of price level to changes in the loney supply, the response of investment to changes income investment function.

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