A useful economic model
a. deals only with possibilities that actually occurred.
b. makes only realistic assumptions.
c. may make some unrealistic assumptions in order to simplify a complex reality.
d. should avoid drawing conclusions that have public policy implications, since economics is not equipped to make value judgments.
c
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In the above table, the marginal propensity to save is
A) 0.6. B) 0.8. C) 0.2. D) 0.4.
An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to
A) lower the interest rate by increasing the quantity of money and move the economy to a full-employment equilibrium at point b. B) increase government expenditure and move the economy to a full-employment equilibrium at point b. C) increase tax rates and move the economy to a full-employment equilibrium at point c. D) increase government expenditure and move the economy to a full-employment equilibrium at point c. E) increase tax rates and move the economy to a full-employment equilibrium at point b.