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What Is the Best Test of An Economic Theory?


The best test of an economic theory is its ability to predict and reflect real-life societal occurrences, patterns, and changes. If the theory accurately predicts the economic behavior of the people in the society

For instance, a theory might predict that putting more money in the hands of the masses, that is, the consumers, and cutting tax will improve the economy. If the economic behavior of the consumers and government yields the foretold results then that theory is considered accurate or valid.

Giving the fact that the controlled environment conducive for testing theories is not guaranteed for the economist as it is for the physicist, the theories can be tested through introspection and econometrics. Intuition plays a vital role here. The data from the field will be analyzed to see how well the theory is realistic in the society.

2 months ago