Google
Wednesday 
July 2, 2025 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
ACTUAL INVESTMENT: Investment expenditures that the business sector actual undertakes during a given time period, including both planned investment and any unplanned inventory changes. This is a critical component of Keynesian economics and the analysis of macroeconomic equilibrium, which occurs when actual investment is equal to planned investment. The difference between planned and actual investment is unplanned investment, which is inventory changes caused by a difference between aggregate expenditures and aggregate output. Should actual and planned investment differ, then aggregate expenditures are not equal to aggregate output, and the macroeconomy is not in equilibrium.

Visit the GLOSS*arama


CAUSE AND EFFECT:

The notion that every event in the universe is the direct result of a preceding event, that one event A causes another event B. The purpose of the scientific method is to identify these cause-and-effect relations. This pursuit is based on a simple point of view: everything happens for a reason. For every action there is a consequence. And for every consequence there is a cause.
Science is the process of identifying cause and effect connections between events, or what are more commonly termed the laws of nature. These connections form the complex machinery that makes up the world. Event A causes event B, which causes event C, which causes event D, etc.

Consider the market for hot fudge sundaes.

  • An increase in buyers' income causes an increase in the demand for hot fudge sundaes.

  • The increase in the demand for hot fudge sundaes causes a shortage of hot fudge sundaes.

  • The shortage of hot fudge sundaes causes the price of hot fudge sundaes to rise.

  • The increase in the price of hot fudge sundaes causes an increase in the quantity supplied and a decrease in the quantity demanded of hot fudge sundaes.

  • The increase in the quantity supplied and a decrease in the quantity demanded of hot fudge sundaes causes the shortage to be eliminated.
Event A causes event B, which causes event C, which causes event D. Knowing each cause-and-effect relation makes it possible to analyze what happens to the market for hot fudge sundaes when buyers have more income.

What About Magic?

The scientific method is built on the presumption that the world is governed by cause and effect. But is it? Might the world operate according to other "rules?" What about magic? Event A does not cause event B? Event B just happens... by magic?

This could happen. The world could work in this way. If so, it would throw every bit of scientific inquiry into the trash dumpster. And it would create massive unemployment among scientists (including economists).

Maybe the earth does not revolve around the sun, but the sun appears in the sky each morning by magic. Maybe the price of hot fudge sundaes does not increase due to a shortage, but it rises because of magic. Maybe magic, not the laws of nature, creates federal deficits, unemployment, earthquakes, and solar flares.

While the presumption of a world operating according to magic is an alternative to cause and effect that might appeal to some folks, it does not provide a great deal of insight into the actual workings of the world.

Correlation

The first step in discovering cause-and-effect links is to understand the general role of correlation. If event A causes event B, then event A is correlated with event B. That is, every time event B happens, then event A also happens. If event A causes event B, then A and B are correlated.

Fallacy of False Cause

While correlation is the first step on the road to causation, correlation alone does not always mean causation. Two events can be correlated, without one causing the other. Mistakenly thinking that correlation necessarily means causation creates the fallacy of false cause. Suppose, for example, that it seems to rain the first day of every school year. Does this mean rain causes the start of school? Does the start of school cause rain? Unlikely on both counts! These events are correlated, but one does not necessarily cause the other. Each is likely caused by something else.

Time

While correlation gives scientists a place to begin when identifying cause and effect, a close look at time (proximity and sequence) helps.
  • Time Proximity: For A to cause B, event A and event B must happen at about the same time. That is what proximity means. For the start of school to cause rain, the rain must occur soon after the start of school. If the rain occurs weeks or months later, then the true cause is something other than the start of school.

  • Time Sequence: In addition, for A to cause B, then event A must occur before event B. If event B occurs first, then it cannot be caused by event A. That is what sequence is all about. The rain must occur after the start of school. If the rain comes first, then rain cannot be caused by the start of school.

<= CARTELCENTRAL BANK =>


Recommended Citation:

CAUSE AND EFFECT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 2, 2025].


Check Out These Related Terms...

     | principle | law | hypothesis | assumption | empirical | phenomenon | theory | verification | world view | model |


Or For A Little Background...

     | scientific method | abstraction | science | economic science | fallacy of false cause | positive economics |


And For Further Study...

     | fallacies | economics | seven economic rules | scarcity | dismal science | graphical analysis | economic analysis |


Search Again?

Back to the WEB*pedia


APLS

BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time at an auction trying to buy either throw pillows for your bed or a package of blank rewritable CDs. Be on the lookout for poorly written technical manuals.
Your Complete Scope

This isn't me! What am I?

A half gallon milk jug holds about $50 in pennies.
"always remember an epitaph which is in the cemetery at Tombstone, Arizona. It says: „Here lies Jack Williams. He done his damnedest.¾ I think that is the greatest epitaph a man can have ‚ When he gives everything that is in him to do the job he has before him. That is all you can ask of him and that is what I have tried to do. "

-- Harry Truman, 33rd US president

EBIT
Earnings Before Interest and Taxes
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2025 AmosWEB*LLC
Send comments or questions to: WebMaster