Which of the following statements is true regarding forecasting in economics?

• A. Forecasting guarantees accurate predictions of future economic outcomes.
• B. Forecasting does not require any assumptions about economic relationships.
• C. Forecasting involves making predictions about future economic variables based on current and historical data.
• D. Forecasting is only used in macroeconomics, not microeconomics.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of economic forecasting. Economic forecasting involves using current and historical data to make informed predictions about future economic variables, such as GDP growth, inflation, or unemployment rates.
2. Step 2: Recognize that forecasting does not guarantee accurate predictions because economic systems are complex and influenced by many unpredictable factors. Therefore, the statement that forecasting guarantees accurate predictions is false.
3. Step 3: Note that forecasting requires assumptions about economic relationships, such as how variables interact or respond to changes. Without these assumptions, models cannot be constructed to make predictions, so the statement that forecasting does not require assumptions is false.
4. Step 4: Understand that forecasting is used in both macroeconomics and microeconomics. For example, firms use forecasting to predict demand for their products, while governments forecast economic growth at the national level. Hence, the statement that forecasting is only used in macroeconomics is false.
5. Step 5: Conclude that the true statement is: 'Forecasting involves making predictions about future economic variables based on current and historical data,' as it accurately describes the nature and purpose of economic forecasting.