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Mistaking Accounting Identities for Causality
Hi folks,
Loving this course, finding Saif’s lectures are amping up my understanding. However, I am stuck with the following Statement, 4. Mistaking Accounting Identities for for Causality – Macroeconomics assumes relationships based on accounting identities must mean causality.
Since I don’t have a background in economics or accounting, could someone please provide me with some clarify around that statement? What exactly are accounting identities and what is the causality that Saif is referring to?
Thanks in advance.
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1 Reply
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Hello. Accounting identities as I understand it simply means those aggregates that are derived using accounting equations. For example, GDP or an income statement which are derived using formulas. These identities do not cause economic phenomena. Human actions geared towards meeting ends using scarce means is the fundamental level of analysis needed to understand economic outcomes.
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