Goal of Econometrics which is to prove a theory.

• A. Inference
• B. Prediction
• C. Hypothesis Testing
• D. Interpretation

Answer: (A)

Econometrics aims to use data to draw conclusions about how economic relationships work in the population. This is inference: from a sample, you estimate parameters, quantify their uncertainty, and assess whether the data support theoretical propositions. Through inference you evaluate whether a theory describing how variables relate holds up, by measuring effect sizes, testing significance, and forming confidence intervals.

Prediction focuses on forecasting future observations, not on validating a theory. Hypothesis testing is a tool within inference, used to decide whether data provide enough evidence to reject a theory. Interpretation helps explain results, but the broader goal remains to infer whether the theoretical relationships reflect reality rather than just describing a specific sample.