Question

Differentiate the economic model with the econometric model.

Answer 1

Economic Model:

• The economic model is the theoretical construct that represents the complex economic process.
• The economic model is based on mathematical modeling.
• The economic model is focused on establishing the logical relationships between the variables in the model.
• The economic model is applied in stating the theoretical relationship into mathematical equations.
• The economic model believes that the outcome is certain and exact. So disturbance term is not required.
• The economic model is deterministic in nature.
• The Keynesian consumption function: C = a + by is the economic model.

Econometric Model:

• The econometric model is the statistical concept that represents the numerical estimate of the variables involved in the economic process.
• The econometric model is based on statistical modeling.
• The econometric model is focused on estimating the magnitude and direction of a relationship between the variables.
• The econometric model is applied in stating the empirical extent of the economic model.
• The econometric model believes that the outcome is certain but not exact. So disturbance term plays a vital role.
• The econometric model is stochastic in nature.
• The Keynesian consumption function: C = a + by + µ is the econometric model